What to Do If You Haven’t Filed Taxes in Years

Falling behind on tax filings is a situation that can be rectified. Many individuals find themselves in this position for various reasons, from personal hardship to simple oversight, but the path to becoming compliant with the Internal Revenue Service (IRS) is well-defined.

This guide provides an overview of the steps for getting back into good standing with tax authorities. It covers the consequences of not filing, gathering necessary documents, preparing and submitting returns, and handling any resulting tax liability.

Understanding the Consequences of Not Filing

Ignoring the obligation to file tax returns initiates a series of administrative actions from the IRS. The failure-to-file penalty is 5% of the unpaid taxes for each month a return is late, up to a maximum of 25%. If a return is over 60 days late, a minimum penalty applies, which is the smaller of a specific dollar amount or 100% of the tax owed.

A separate failure-to-pay penalty accrues at a rate of 0.5% of the unpaid taxes for each month or partial month the tax remains unpaid, also maxing out at 25%. Because the failure-to-file penalty is substantially higher, it is advantageous to file returns even if you cannot pay the full amount owed.

Beyond these penalties, interest accrues on the total amount of unpaid tax and on the penalties themselves. The interest rate, which is the federal short-term rate plus 3 percent, is determined quarterly and compounds daily.

If you do not file a return, the IRS may eventually file a Substitute for Return (SFR) on your behalf using information from third-party sources like W-2s and 1099s. An SFR uses basic assumptions, like a single or married filing separately status with only the standard deduction. This approach results in a higher tax liability because it omits any deductions or credits you could have claimed.

Failing to file also puts you at risk of losing potential tax refunds, as the law provides a three-year window from the original due date to claim one. Unfiled tax returns can also delay or prevent loan approvals and impact the calculation of future Social Security benefits.

Information and Documents to Gather

Before you can prepare past-due tax returns, you must collect all the necessary information and documentation. A systematic approach to gathering these materials will streamline the process.

Identify Which Years to File

The IRS’s internal policy generally focuses on the last six years of unfiled returns. For most people becoming compliant voluntarily, filing returns for the previous six years is sufficient. This is a guideline, and specific circumstances could alter this requirement.

Gather Personal Information

You will need basic personal information for yourself, your spouse if filing jointly, and any dependents. This includes full names, dates of birth, and Social Security numbers for everyone who will be on the tax returns. You will also need your current mailing address.

Obtain Income Information

The most efficient way to get income information is through the IRS “Get Transcript Online” tool. After verifying your identity, you can download a “Wage and Income Transcript” for each missing year. This transcript contains data from Forms W-2, 1099, and other information returns the IRS has received. If you cannot use the online tool, you can mail Form 4506-T, Request for Transcript of Tax Return, though processing takes several weeks.

Collect Records for Deductions and Credits

Gather all records that support potential deductions and credits to ensure you pay only what you legally owe. Review past bank and credit card statements for deductible expenses like mortgage interest (Form 1098), student loan interest (Form 1098-E), property tax payments, and charitable contributions. If self-employed, compile records of business expenses, including mileage logs, supply receipts, and home office costs.

Find the Correct Tax Forms

Tax laws change annually, so you must use the specific forms and instructions for each year you are filing. You cannot use a current year’s Form 1040 for a past year. The IRS website has a “Prior Year Forms & Instructions” page where you can download the correct form and instruction booklet for each year.

Preparing and Filing Your Past Due Returns

Once you have your documents, you can prepare and submit your overdue tax returns. This process requires careful attention to IRS procedures for late filings to ensure accuracy.

Completing the Forms

Prepare the returns in chronological order, starting with the oldest year first. Certain tax items, like a capital loss carryover, can affect the calculations on the following year’s return. Filing sequentially ensures these carryover amounts are correctly applied, which can lower your tax liability in later years.

Submitting the Returns

Past-due returns cannot be electronically filed and must be mailed to the IRS. Mail each tax year’s return in a separate envelope to avoid processing errors.

The correct mailing address is in the form’s instructions and depends on your state and whether you are including a payment. For proof of filing, use a service like USPS Certified Mail with a return receipt. After mailing, expect a processing time of at least six weeks, and you will receive separate notices from the IRS for each tax year.

Addressing Your Tax Bill

After the IRS processes your returns, you will likely have a tax bill. Understanding the amount you owe and exploring IRS programs to manage tax debt is the final phase of becoming compliant.

Understanding IRS Notices

Weeks after you file, the IRS will send a notice for each tax year detailing the total amount owed. This figure includes the original tax, plus accrued penalties and interest. Review these notices carefully to ensure they align with the returns you filed.

Penalty Abatement

You may be able to have penalties removed through penalty abatement. The most common form is the First-Time Abatement (FTA) waiver. To qualify for FTA, you must have a clean compliance history, meaning no penalties in the three years prior to the tax year in question. You must also have filed all required returns and paid, or arranged to pay, any tax due.

IRS Payment Plans (Installment Agreements)

If you cannot pay your tax debt at once, the IRS offers payment plans. A short-term plan provides up to 180 days to pay in full. For larger debts, a long-term installment agreement allows for monthly payments for up to 72 months. You can apply online through the IRS website or by submitting Form 9465 with your tax return.

Offer in Compromise

An Offer in Compromise (OIC) may allow you to resolve your tax liability for less than the full amount owed. Eligibility is based on a detailed financial analysis of your ability to pay, income, expenses, and assets. The IRS provides an OIC Pre-Qualifier tool on its website to help you see if this is a viable option.

Currently Not Collectible

In cases of economic hardship, you may be placed in Currently Not Collectible (CNC) status. This means the IRS has determined you cannot afford to pay your back taxes or your basic living expenses. While in CNC status, the IRS temporarily pauses collection efforts. However, your tax debt does not disappear; interest and penalties continue to accrue, and the IRS will periodically review your financial situation.