What If I Haven’t Filed Taxes in 3 Years?

Forgetting to file tax returns for several years can be a source of concern. This guide provides information to help navigate the situation of unfiled taxes.

Consequences of Not Filing

Failing to file a tax return by the due date can result in financial penalties. The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month a return is late, with a maximum of 25% of your unpaid tax. If the return is over 60 days late, a minimum penalty applies.

A separate failure-to-pay penalty applies if you do not pay taxes by the due date. This penalty is 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid, capped at 25% of your unpaid tax. Both the failure-to-file and failure-to-pay penalties can apply simultaneously, increasing the total amount owed. Interest also accrues on any unpaid taxes and penalties, compounding daily until the balance is paid in full.

If a taxpayer fails to file, the IRS may prepare a “Substitute for Return” (SFR) based on information it receives from employers and financial institutions, such as W-2 and 1099 forms. An SFR does not include deductions, credits, or exemptions that the taxpayer might be entitled to, resulting in a higher tax liability than if the taxpayer had filed their own return. The IRS may then initiate enforcement actions to collect the tax, penalties, and interest determined by the SFR. These actions can include placing a federal tax lien on property or issuing a levy on wages or bank accounts.

Gathering Information for Unfiled Returns

Preparing past-due tax returns requires gathering specific financial documents for each year. You will need forms like W-2s from employers, which report wages and withheld taxes. Independent contractors or those with other income sources will need various 1099 forms (e.g., 1099-NEC, 1099-INT, 1099-DIV, 1099-R). Documentation for capital gains or losses, reported on Form 1099-B, is also important.

To claim deductions and credits, you will need supporting records for expenses such as mortgage interest (Form 1098), student loan interest (Form 1098-E), medical expenses, and charitable contributions. Receipts, bank statements, and credit card statements can help reconstruct these financial activities. These documents ensure accurate income and expense reporting.

If you are missing W-2s or 1099s, you can contact former employers or financial institutions directly to request copies. The IRS.gov Get Transcript tool is a convenient method for obtaining missing wage and income information, allowing you to view and print transcripts. These transcripts provide data reported to the IRS, including information from W-2s, 1099s, and other income statements. Prior year tax forms, such as Form 1040 for specific tax years, are available for download directly from the IRS website, ensuring you use the correct version for each unfiled period.

Steps to File Delinquent Returns

Once all necessary information is gathered and your past-due tax returns are prepared, the next step is submission. Each tax year’s return must be completed on the specific Form 1040 (or appropriate form) designated for that year, such as the 2021 version for a 2021 return. Using the correct form ensures calculations align with applicable tax laws.

It is recommended to mail each year’s completed tax return separately to the IRS. This prevents confusion and ensures each return is treated as distinct. The correct mailing address depends on your geographic location and the type of return you are filing; general mailing addresses are available on the IRS website in the instructions for Form 1040. Using certified mail with a return receipt can provide proof of mailing and delivery, which is helpful for your records.

After submitting your delinquent returns, the IRS will process them, which can take several weeks or even months, especially for older returns. You may receive correspondence from the IRS, such as notices of assessment or penalty notices, detailing taxes, penalties, or interest due. Review these notices carefully and respond promptly to any requests for additional information or to address discrepancies. If a refund is due, it will be issued after the returns are processed, provided you meet the refund claim deadline.

Special Considerations for Unfiled Returns

The outcome of unfiled tax returns depends on whether you are owed a refund or owe additional tax. If a refund is due, the IRS imposes a three-year deadline for claiming it. This period begins from the original due date of the return. Even if a refund is anticipated, filing the delinquent return remains important to avoid penalties and ensure compliance for future tax years, as unfiled returns can cause issues with future IRS filings.

If you owe tax for past years, several payment options are available. You can pay the full amount due immediately, or if that is not feasible, you may be able to set up an IRS payment plan, such as an Installment Agreement. An Installment Agreement allows taxpayers to make monthly payments for up to 72 months. Alternatively, for those facing financial hardship, an Offer in Compromise (OIC) might be an option, allowing taxpayers to resolve their tax liability for a lower agreed-upon amount.

Consider situations where the IRS may have already prepared a Substitute for Return (SFR) on your behalf. Even if an SFR exists, it is important for you to file your own accurate tax return for that year. Your filed return will replace the SFR, allowing you to claim all eligible deductions, credits, and exemptions, which could reduce your tax liability compared to the IRS-prepared SFR. Filing your own return helps ensure your tax record is accurate and complete.

Seeking Professional Help

Navigating unfiled tax returns can be challenging, and seeking assistance from a qualified tax professional is advisable. Professionals such as Enrolled Agents (EAs), Certified Public Accountants (CPAs), or tax attorneys possess specialized knowledge of tax laws and IRS procedures. They can provide guidance tailored to your specific situation to ensure accuracy and compliance.

Professional help is valuable in complex tax situations, such as those involving business income, investment activity, or multiple years of unfiled returns. If you face large amounts of tax owed or large penalties, a professional can help assess your options and mitigate these liabilities. They can also assist with the process of obtaining missing documents, especially if you encounter difficulties.

A tax professional can also represent you in dealings with the IRS, which can be beneficial if you are concerned about enforcement. They can help negotiate payment plans, such as an Installment Agreement, or explore an Offer in Compromise. Their expertise can streamline the entire process, alleviate stress, and ensure a positive outcome for your unfiled tax situation.