Failing to file tax returns can lead to immediate issues and problems that surface months or years later. The IRS won’t forget that you have delinquent tax returns, and the consequences can become more severe as time passes.
You may face any or all of the following problems if you have unfiled tax returns.
You could face the failure-to-file penalty, the late-payment penalty, as well as interest if you have unfiled tax returns. These penalties are only assessed if you owe a balance on your tax return.
Taxpayers who are due a refund won’t be charged penalties, but could face other consequences.
Loss of Refund
The IRS will only give you three years to claim a tax refund. After that, you forever waive your right to that year’s refund money, and you won’t receive a credit for future tax years or accumulated tax debt.
Every year, the deadline expires for some taxpayers’ opportunity to receive a tax refund for a prior tax year.
You might file your tax return for this year—anticipating a refund—only to get a notice from the IRS instead. That notice may inform you that your refund is being held because you have an unfiled return for a prior tax year.
The IRS won’t release your current year refund until you file the delinquent returns because you may owe a tax liability on your old returns.
Substitute for Return
Eventually, the IRS may file a Substitute for Return (SFR) on your behalf. This return is filed without your input when you fail to voluntarily file a tax return.
The SFR usually results in a higher tax liability than a return you file on your own. Once the SFR is filed, the IRS can begin attempting to collect the tax from you.
Tax Resolution Hurdles
If you want to enter into anor Offer in Compromise, unfiled tax returns can present a major problem. The IRS will generally not agree to a payment arrangement or settlement until all of your past due returns are filed.
Talk to a tax attorney about getting your delinquent tax returns filed and resolving your tax debt problems.