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IRS Unfiled Tax Return Overview

Un-Filed Tax Returns. Why Take Care of It Now?

Federal law considers the willful failure to file a tax return a crime that can result in fines and even jail time. While most taxpayers with un-filed returns, who take care of the issue before the IRS “moves in” will never be charged with a crime, there is a number of other reasons that an un-filed return issue should be dealt with as soon as possible.

Collection Statute of Limitation Period Never Starts

An honest return can only be audited by the IRS within 3 years of assessment. The IRS has 10 years to collect an IRS debt from the date of assessment. Neither of the time periods begins to run if the taxpayer never files the tax return. A return that was required to be filed in 2017 for the 2016 tax year and that still isn't filed in 2022, will still carry with it the 3-year audit date and the 10-year collection date from 2022, not 2017.

Interest on The Debt

An often overlooked problem with a late-filed return is that upon assessment, the IRS can calculate interest on the underlying debt and interest on the penalties from the date it was due to be filed. The IRS won't calculate the interest from the date you filed the return. If the return was due in 2017 and the taxpayer files it in 2022, the taxpayer has added 5 years of interest to the underlying debt and penalty. If a full payment plan of one type or another ends up being the taxpayers' best option, the taxpayer will regret having waited so long to file and start the payment process.

The IRS Can Prepare the Missing Return for You - Incorrectly

The IRS rules require that employers and other third parties submit how much they paid you each year. Banks submit forms showing interest on accounts, brokerages submit forms showing profit from stock sales, businesses hiring independent contractors to submit documents showing the amounts paid, etc.

As a result, the IRS has in its possession most of the taxpayers' income information but little of the taxpayers' deductions and exemption information.

The IRS has been preparing hundreds of thousands of these returns each year based on this reported information.

These returns are commonly called “substitutes for returns” and the IRS can use them to begin the collection process against the taxpayer.

The taxpayer can usually create the correct returns and file them as “audit reconsideration” requests in an attempt to ensure the correct balance is due, BUT the initial filing and assessment of the substitute return, under current law, ensures the underlying debt is never dischargeable in bankruptcy AND it's possible that the IRS won't accept the correct return or at least it may conduct an audit of the return.

Lost Refunds

The taxpayer has only 3 years from the date the return was due to be filed originally to file the return AND be entitled to the refund associated with that return. After the 3 year period passes, that refund becomes government property and the taxpayer won't get it back.

IRS Penalties

The IRS is able to assess penalties for late filing and late payment. Most taxpayers don't realize however that these penalties aren't assessed in full at the moment the return is filed. A portion of each penalty is assessed and the penalties grow over time until they reach a maximum allowable amount. Filing a late return before those penalties have “fully grown” can sometimes result in less penalty overall depending on how the debt is dealt with.

Compliance for IRS Collection Purposes

The IRS can request missing tax returns as a condition of stopping collection activity, setting up installment agreements and non-collectible status arrangements and reviewing offers in compromise. If the taxpayer has IRS debt from other/filed years but also has missing/required tax returns, they'll need to be completed and provided to the IRS to stop collection.

Steps to Deal with Un-Filed/late Returns

Determine Whether You Are Required to File the Return


If the IRS mails the taxpayer a notice that a return is missing, the taxpayer will first want to make sure that the requirement to file that return exists or whether the taxpayer already filed the return and the IRS is just not seeing it.

The taxpayer should obtain from the IRS wage and income transcript(s) and account transcript(s). These transcripts will help the taxpayer determine whether the return was filed and in the system and/or whether a filing requirement for the particular year exists.

If no filing requirement existed for the year in question, the taxpayer can use IRS form 15103 to make the IRS aware of the situation. If the return was already filed, the taxpayer should always attach a copy of that return to form 15103 showing the IRS that the filing requirement was satisfied.


When the taxpayer knows that returns haven't been filed for some period of time, the taxpayer's wage and income history and overall account history should be obtained as a first step. These documents will help the taxpayer confirm which return years are missing and what was reported to the IRS in each year as income and other items.

As a general rule, even if the taxpayer hasn't filed for more for quite some time, it won't always be necessary to prepare and file all of the returns that are missing. The IRS, with a few important exceptions, will only look back 6 years for missing returns.


When a social security number is stolen, the social security number is often used for employment purposes. As a result, the IRS will receive w-2 and 1099 info with the taxpayer's social security number on documents showing income the taxpayer never earned. The IRS will sometimes issue the delinquent notice document(s) to the taxpayer who is the victim of the scam as a result.

When a delinquency letter is issued by the IRS to the taxpayer and the taxpayer finds from reviewing the wage and income history and account transcript history that the social security number is being fraudulently used, the taxpayer will need to report the identity theft issue to the IRS and work with the IRS to resolve it.

Prepare Returns

Once the taxpayer has contacted the IRS, obtained necessary wage and income documents from the IRS, and confirmed which years need to be filed and prepared, the taxpayer can begin the process of creating the necessary returns.

It's important that the taxpayer start the process by ensuring that items reported to the IRS are correct and match the items in the wage and income transcripts at a minimum. If the return doesn't contain the items from the wage and income transcript the IRS system will issue a notice and will change the return to include the missing information.

The taxpayer doesn't always have all of the necessary information to complete a schedule A or a schedule C when self-employed. The taxpayer may need to obtain records to calculate those items, and if unavailable, speak with counsel about recreating and estimating missing items and numbers.

The taxpayer should review the situation with experienced counsel before finalizing and filing the returns to ensure that from a legal standpoint nothing is missed regarding which returns need to be filed, ways to calculate hard to re-create tax return information, and options and planning necessary to deal with the tax debt that will result from filing.

The taxpayer will want to request the best filing address for the newly created returns and mail them individually and at least via priority mail with a tracking number if not by certified mail to ensure receipt.

Keep IRS Collection and SFR Creation at “BAY”

If, while preparing the missing returns, there is any outstanding IRS debt from other years or from IRS substitute returns the taxpayer may be “challenging”, there will be a threat of levy or garnishment by the IRS.

The taxpayer should maintain contact with the IRS to ensure that while the returns are being finalized, filed, and assessed, the IRS doesn't issue levies, garnishments or take other unwanted collection action. The IRS will almost always agree to place a hold on collection if the taxpayer provides a request for the delay so that the taxpayer can create and file the return.

Consider Filing a Penalty “Non-Assertion” Request

If the taxpayer faced some unforeseen circumstances that prevented a timely tax return filing, the taxpayer can request that the late filing penalty not be assessed when the late-filed return debt is assessed. The taxpayer will want to attach the request to the return when mailing. If the IRS ignores the request, a separate penalty abatement request may make sense after the debt is assessed.

Track the Processing of The Return

If the taxpayer faced some unforeseen circumstances that prevented a timely tax return filing, the taxpayer can request that the late filing penalty not be assessed when the late-filed return debt is assessed. The taxpayer will want to attach the request to the return when mailing. If the IRS ignores the request, a separate penalty abatement request may make sense after the debt is assessed.