Unfiled Tax Returns: Get Caught Up with the IRS

A non-filer is a taxpayer who has a tax return that was not filed. It is prevalent for a non-filer to have more than one unfiled tax return, and for the non-filing time frame to span over several years. The majority of taxpayers who did not file a tax return with the IRS may have not filed for one of the reasons listed below.

• The non-filer has never filed a tax return and does not know where to begin with filing a tax return or is reluctant to start filing in fear that the IRS will come back for other unfiled tax returns from previous years.
• Another likely reason for not filing a tax return is because a taxpayer who might have always submitted a tax return in the past may have skipped filing a tax return for one year, and then did not know what to do next year out of fear that the IRS could take action against them for the year that was missed. Therefore, the taxpayer begins a process of continuing to not file tax returns for future years to come.
• Furthermore, many taxpayers bypass filing a tax return because they don’t want the government to intercept their tax refund check for child support, student loans or other outstanding debt.

Whatever the reason, the problem gets harder to fix the longer it sits, and the IRS often moves first. Here’s what happens if you forgot to file and what it means if you haven’t filed in 10 years or more.

Unfortunately, when an individual or business is a non-filer and does not file a tax return, they are typically not aware of the IRS being able to file one for them. The IRS has a program known as the Substitute for Return Program, in which the IRS prepares a return for taxpayers who do not submit one of their own, using the W-2s, 1099s and other income reports it receives. The bad part, however, is when the IRS files a new tax return; the taxpayer often owes the IRS money. This happens because the tax return that the IRS files does not maximize taxpayer deductions, expenses, credits and exemptions. The unfiled tax return process can therefore swing from collecting a tax refund to owing money to the IRS.

1. No return noticeA notice such as CP59 saying the IRS has no record of your return.
2. Follow-upsMore notices if there’s no response.
3. Substitute returnThe IRS figures your tax from income reported by employers and banks.
4. 90-day letterCP3219N. 90 days to file your own return or petition the Tax Court.
5. CollectionThe tax is assessed, then bills, liens and levies.

A substitute return isn’t final. Filing your own return replaces the IRS’s numbers with ones that include your deductions and credits, which usually lowers the balance. Even after the 90 days, we can file your original return and ask the IRS to reconsider the assessment.

The risk of not filing a tax return goes beyond the possibility of the money owed to the IRS. Social Security retirement and disability benefits are based on the lifetime earnings of a person reported to the Social Security Administration and the IRS. If you’re self-employed and don’t file, that income is never reported, so it doesn’t count toward those benefits. Lenders and federal student aid also rely on filed returns or IRS transcripts as proof of income, so missing returns can hold up a mortgage or financial aid.

Although it is a crime to willfully fail to file a tax return, many taxpayers that are non-filers and have not filed a tax return are largely at financial risk because the IRS imposes penalties and compounding interest on non-filers’ tax debts. The late filing and late payment penalties alone can reach 47.5 percent of the tax. The IRS can also pursue criminal and civil actions against non-filers.

Once the IRS assesses tax on an unfiled year and it goes unpaid, it can begin seizing the money within your bank accounts and garnish your future wages, after sending the required notices. Tax levies are a common next step for non-filers. The unfortunate part is that in many cases when people are penalized or have wage garnishments by the IRS, they don’t owe all of the money that the IRS says they do, because the substitute return left out their deductions and credits.

Usually six. IRS policy says it normally enforces filing for no more than the last six years, and going further back takes a manager’s approval. It can ask for more when the non-filing looks willful, income came from illegal sources, or a large balance is involved.

If records are missing, we request your wage and income transcripts from the IRS for each year, which show what employers, banks and others reported. If you’re self-employed or do gig work, we rebuild income and expenses from bank statements and 1099s.

1. We pull your IRS records

   We file a power of attorney, pull your account and wage and income transcripts, and check for substitute returns, notices and deadlines.

2. We rebuild what’s missing

   We gather W-2s, 1099s and bank records, and work out business expenses if you’re self-employed.

3. We prepare and file every return

   We file the years the IRS needs, usually the last six, replacing any substitute returns with your own numbers.

4. We resolve the balance

   We look for penalties that can come off, then set up a payment plan, offer or hardship status, and stop any levy.

Contact Anthem Tax Services for expert help on unfiled tax returns. You can also see all of our tax debt relief options and how the IRS Fresh Start program works.