Unfiled Tax Returns

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Written by

Jim Buttonow

What Are Unfiled Past-Due Returns?

When you miss filing your taxes on time, you end up with unfiled past-due returns, also known as back tax returns. This can lead to serious actions from the IRS, from a request for you to file, filing a return for you, or even a criminal investigation.

Important Points About Non-filing:

  • Filing requirements: If you’re supposed to file taxes, it’s essential to do it on time. Not doing so can lead to both civil and criminal investigations by the IRS.
  • Penalties: Late filing can result in hefty penalties, up to 5% of what you owe per month, with a maximum of 25%. In cases of fraud, it can go up to 75%. However, there are ways to get relief from these penalties.
  • Number of years to file: Generally, IRS policy requires you to file the current year’s return and the last five years to be compliant. But there can be exceptions, especially for business filers and taxpayers subject to local IRS enforcement (revenue officer or revenue agent assignment).
  • IRS transcripts: The IRS keeps income and account information for you to help with filing past-due returns. You should obtain the wage and income and account transcripts for the year(s) in question to help with filing an accurate return.  
  • IRS Substitute for return (SFR) procedures: If you don’t file, the IRS might file a return for you – this is called a “substitute for return” or “SFR.” The SFR will result in a balance owed to the IRS because it won’t include any deductions or credits you might be eligible for.  You can replace a filed SFR by the IRS with the actual return you file. However, you will need to follow special procedures to file “over an SFR.”
  • Frozen refunds: Not filing can lead to the IRS freezing your refunds for future years.
  • Special procedures: Late filers might need to follow special procedures to file their returns, like matching them with IRS income records and where to file their back returns.  Also, if the return is more than 3 years old, you must file the return by paper. 
  • Handled by IRS Collection employees: Investigations into unfiled returns are usually carried out by IRS Collection employees, who are responsible for pursuing non-filers.  However, in some complex cases, IRS Examination employees (auditors called “revenue agents”) can be assigned to non-filing case enforcement.

Background on Unfiled Past-Due Returns:

  • Frequency: Each year, millions of taxpayers don’t file their taxes on time, leading to millions of IRS investigations. Investigations can be done from IRS campuses or locally with IRS revenue officers or revenue agents.  Generally, non-filing investigations from IRS campuses start with a CP59 notice issued about 7 months after the required filing date.  SFR actions generally occur from IRS campuses 2-3 years after the return due date.
  • Resolution Time: Resolving this issue can take anywhere from three months to a year, depending on paper return filing procedures and prior IRS enforcement.  The older the year in question and IRS enforcement will lead to longer resolution times.

Solutions for Resolving Unfiled Past-Due Returns:

  • Filing late returns: File your late returns accurately with the IRS to get back on track.
  • Revising SFR Filing: If the IRS files a return for you, you can file your own return to replace it.
  • Other solutions: There are other ways to resolve this issue, like proving you didn’t need to file or requesting the removal of the filing requirement.

Steps to Resolve Unfiled Past-Due Returns:

  • Confirm you did not file: Make sure you did not file your tax return for the year in question. If you did file, you should send Form 15103, Form 1040 Return Delinquency, to the IRS, with a copy of your return, to show that you filed. 
  • Contact the IRS for transcripts and instructions to file: Get necessary IRS information, including your wage and income and account transcripts for the year(s) in question, and instructions from the IRS on where to file.  You may need to file with a special IRS unit if there is prior compliance activity.
  • Gather your tax documents: Collect all the documents you need to file your past-due return.  This includes Forms W-2, 1099, etc. and expenses that you have that may lower your tax bill. 
  • Complete returns: Fill out your returns accurately, including all your income information.  Make sure to include all items reported to the IRS on the right line items on the return to avoid IRS rejection, audit, or a notice.
  • Request penalty relief, if applicable: You might be able to avoid or reduce penalties by using IRS’ First-time Penalty Abatement or for reasonable cause.  Attach a letter and supporting documents with your return to request failure to file and/or pay abatement.
  • File returns: Send your completed returns to the IRS.  Most tax professionals can file the previous 3 years electronically.  Returns older than the current and past two years must be filed by paper.
  • Monitor progress until return acceptance: Keep track of your return’s processing and any follow-up needed.  The IRS may ask questions about the return before accepting it.  Paper return acceptance can take 4-6 months.
  • Pay or set up an IRS collection alternative on any remaining balance: If you owe and cannot pay, set up a payment plan or other arrangements with the IRS to avoid IRS collection enforcement.