What Do I Do If I Haven’t Filed My Taxes in a Few Years?
If you haven't filed taxes in years, find a clear path to understanding and resolving your past tax situation.
Not filing taxes for several years can feel overwhelming, but a structured path exists to become compliant. The Internal Revenue Service (IRS) has procedures to help taxpayers resolve unfiled returns and address outstanding obligations. Taking proactive steps can prevent further issues.
Collecting Your Tax Information
The first step in addressing unfiled tax returns is to collect all relevant financial documents for each unfiled tax year. This ensures accurate data for proper return preparation.
Gather documents like W-2 forms for wages, 1099 forms for interest (1099-INT), dividends (1099-DIV), government payments (1099-G), and miscellaneous income (1099-MISC). Self-employed individuals need detailed business income and expense records. K-1 forms are necessary for investments in partnerships, S corporations, or trusts.
Also collect records for deductions or credits, such as mortgage interest statements (Form 1098), student loan interest statements (Form 1098-E), medical expenses, or charitable contributions.
If W-2s are missing, contact former employers, who generally keep these records for at least four years. For missing 1099s, reach out to financial institutions or payers.
If direct contact is not feasible, request a “Wage and Income Transcript” from the IRS. This transcript provides data from information returns like W-2s and 1099s reported to the IRS. Obtain it online through the IRS “Get Transcript” service, by phone, or by mail using Form 4506-T. Organize documents by tax year, as each year requires a separate return.
Completing and Submitting Your Returns
After gathering all financial information, accurately complete and submit your past-due tax returns.
Prepare returns using tax software designed for prior years, by downloading forms from the IRS website, or by working with a tax preparer. Some software can import prior-year data, streamlining the process.
When preparing multiple unfiled returns, file the oldest return first. While the IRS prefers all missing returns are filed, focusing on the most recent six years is often practical, especially if you anticipate owing taxes. Attach all required schedules and forms. Prior-year returns are typically mailed to the IRS, not e-filed.
Send completed returns via certified mail with a return receipt requested for proof of submission. Do not include payment unless you are certain of the amount owed and wish to pay immediately. The IRS will send a notice detailing taxes due, interest, and penalties after processing your returns.
Addressing Unpaid Taxes and Penalties
When addressing unfiled tax returns, understand potential tax liabilities, interest, and penalties.
If taxes are owed, the IRS may impose a failure-to-file penalty and a failure-to-pay penalty, plus interest. The failure-to-file penalty is 5% of unpaid taxes per month, capped at 25%. If both apply, the failure-to-file penalty is reduced by the failure-to-pay penalty for that month. The failure-to-pay penalty is 0.5% of unpaid taxes per month, also capped at 25%.
Interest on unpaid taxes accrues from the original due date, even with an extension. This rate is the federal short-term rate plus 3% for individuals and compounds daily. Unlike penalties, interest cannot be waived or reduced by the IRS. Pay any taxes due promptly to minimize interest and penalties.
If unable to pay immediately, the IRS offers payment options. An installment agreement allows monthly payments for up to 72 months, potentially reducing the failure-to-pay penalty rate to 0.25% per month. An Offer in Compromise (OIC) allows taxpayers to settle tax debt for a lesser amount. OIC eligibility requires filing all required tax returns and not being in an open bankruptcy proceeding.
Request penalty abatement for reasonable cause, such as serious illness or natural disasters. The IRS offers a First-Time Abatement program for certain penalties if you have a clean compliance history for the preceding three years. The IRS has a three-year statute of limitations for assessing additional tax from the later of the return’s due date or filing date. However, there is no statute of limitations if a return was never filed or was filed fraudulently. For claiming a refund, you have three years from the filing date or two years from the payment date, whichever is later.
Seeking Professional Assistance
For individuals with multiple unfiled tax returns or significant tax liabilities, professional assistance is beneficial.
Tax professionals like Certified Public Accountants (CPAs), Enrolled Agents (EAs), or tax attorneys have specialized knowledge of tax laws and IRS procedures. Their expertise ensures accurate return preparation and helps you take advantage of applicable deductions and credits, potentially reducing your tax owed.
These professionals can represent you before the IRS, handling communications and negotiations. This is advantageous if you owe large amounts, have received IRS notices, or are concerned about audits. They can help explore payment plans like installment agreements or determine OIC qualification. They can also guide you through requesting penalty abatement.
When choosing a tax professional, look for someone with credentials and experience in resolving unfiled tax returns. Verify credentials and inquire about their experience with similar situations. Their assistance helps resolve tax issues and ensures long-term compliance.