Unfiled Tax Returns

If you haven’t yet submitted your federal or state income tax return for the current year or any prior years, it’s essential to do so promptly, regardless of your reasons for not filing on time. The IRS and state tax agencies mandate taxpayers file annual income tax returns if their taxable income including wages, interest, dividends, and self-employment earnings surpasses the minimum filing requirement threshold.

The minimum income filing requirement is typically adjusted annually based on the Consumer Price Index, resulting in a slight increase each year. Information regarding the specific minimum income filing requirements for various years can be found on the official websites of the IRS or state tax agencies, as well as through other sources accessible via search engines like Google.

The IRS stipulates that taxpayers are considered in compliance with filing requirements if they have filed returns for at least the past six years. For instance, in 2024, taxpayers are required to have filed returns for the years 2018 through 2023 to be deemed compliant with filing regulations. State tax agencies may or may not have similar policies. Some state agencies, such as the CA Franchise Tax Board (FTB), may expect taxpayers to file all overdue returns dating back to the extent of available records.

What are the consequences if a taxpayer fails to file returns? In the most severe cases, willful failure to file constitutes a crime, and the taxpayer may face prosecution. More commonly, the IRS and state agencies reserve the right to prepare a return on behalf of the taxpayer, known as a “substitute for return,” which often results in a higher liability than if the taxpayer had filed an accurate (albeit late) return. Fortunately, if the IRS or state agency prepares and assesses a substitute for return, the taxpayer still has the option to prepare and submit a delinquent return to mitigate the assessed tax liability. Taxpayers may also incur a late filing penalty if their return is overdue.

There is no civil penalty for failure to file if a refund is due. However, there is a risk of forfeiting the refund entirely if a return claiming a refund is filed after the statute of limitations expires. Generally, an original return claiming a refund must be filed within three years of its due date for the refund to be allowed in most cases. After the expiration of this three-year period, the refund statute typically prevents the issuance of a refund check and the application of any credits, including overpayments of estimated or withholding taxes, to other underpaid tax years.

If a taxpayer has outstanding tax liabilities and wishes to settle them through an installment agreement or an Offer In Compromise, neither of these options is available if the taxpayer is not in compliance with filing requirements. For taxpayers not in filing compliance, their primary objective should be to file their overdue returns.

I offer the software and expertise necessary to prepare delinquent income tax returns for the current year as well as past tax years for any state within the United States. Contact me for more information and to arrange for the preparation of your delinquent returns.