How Far Back Can the IRS Go for Unfiled Taxes?
You read that correctly — the IRS statute of limitations on assessment for a given tax year never starts running if you never file a tax return for that year.
That said, if you’ve gotten behind on several years of taxes — say, you haven’t filed taxes in 10 years — you can typically get away with just filing the last six years of returns and entering into a resolution with the IRS on whatever you owe from those six years.
Of course, if the IRS has filed a substitute for return (SFR) for you — explained later in this article — for a year previous to that six-year window, it may be in your best interest to file an original return for that year as well.
Related: How to File Back Tax Returns
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What Is the Statute of Limitations on Assessment?
Under IRC § 6501(a), the IRS generally has three years from the later of the due date of the return or the actual filing date of the return to assess a tax due on the taxpayer; this is known as the IRS’ statute of limitations on assessment.
Any time within this three-year period, the IRS can assess the tax for a given tax year on the taxpayer.
What Is the IRS Statute of Limitations on Unfiled Tax Returns?
But wait! What if the taxpayer never files a return for a given year?
In this case, the IRS’ statute of limitations on assessment never starts running because no return was filed.
This means that the IRS could “go back” to that year at any time and make their own assessment of tax for that year.
How Does the IRS Make an Assessment of Tax for an Unfiled Year?
Oftentimes, if a tax return for a given year is unfiled, the IRS will prepare a substitute for return (SFR) for that year and, on the basis of that SFR, assess and collect tax.
And although it could certainly go back further, the IRS typically does not go back further than five years when preparing ASFRs through its Automated Substitute for Return (ASFR) Program.
This is to say that although the IRS has the power to go back an unlimited number of years for unfiled taxes, it typically only goes back five years in practice.
Of course, this five-year rule is not a law; it is simply IRS policy that could very well change in the future with technological advancements at the IRS.
What Does It Mean For the IRS to “Go Back” to an Unfiled Year?
When we talk about the IRS “going back” to an unfiled year, we typically mean it doing the following:
- Notifying a taxpayer that they have not filed a return for a given year, typically through a series of notices beginning with the Notice CP59
- Filing an SFR for that year
- Notifying the taxpayer of the filing of this SFR through sending them a 30-day letter, typically in the form of Letter 2566
- Sending the taxpayer a 90-day letter, that is, a statutory notice of deficiency — typically in the form of Letter 3219N — describing the taxpayer’s right to petition the Tax Court as well as their right to file an original return for the year to replace the SFR
- Assessing taxes, penalties, and interest against the taxpayer on the basis of the SFR, assuming the 90-day letter was not responded to
- Taking forced collection activity — such as wage garnishments and bank levies — against the taxpayer until the taxpayer’s tax debt to the IRS is paid
Note that after any step in this process, the taxpayer can prevent further steps by simply filing an actual return for the year and entering into a resolution with the IRS on any resulting back taxes they owe for that year.
How Does the IRS Find Out About Unfiled Tax Returns?
The IRS finds out about unfiled tax returns by systemically comparing income information for a taxpayer shared by third parties with the IRS — such as on Form W-2, Form 1099, Schedule K-1, etc. — to a taxpayer’s tax return filings (or non-filings).
If enough income was reported to the IRS for a taxpayer to trigger a filing requirement for the year, but you didn’t file a tax return for that year, the IRS would naturally know that have an unfiled tax return for that year — and it may file a substitute for return (SFR) for you.
If you would like professional assistance regarding your unfiled tax returns, book a free unfiled returns consultation here.
How to Catch Up on Unfiled Returns
If you’ve gotten behind on several years’ worth of taxes, you may feel like you will never be able to get caught back up.
However, the process may not be as stressful as you may think.
Here is how to catch up on unfiled returns, step by step.
Note: For a more detailed explanation of what you should do if you haven’t filed tax returns in a long time, read this article.
1. Determine which years you should file.
The good news is that you may not need to file returns for all of the years you haven’t filed.
In Policy Statement 5-133, which you can read in Internal Revenue Manual Section 18.104.22.168.18, the IRS says:
“Normally, application of the above criteria will result in enforcement of delinquency procedures for not more than six (6) years. Enforcement beyond such period will not be undertaken without prior managerial approval. Also, if delinquency procedures are not to be enforced for the full six year period of delinquency, prior managerial approval must be secured.”
This means that for most delinquent taxpayers, the IRS will only force them to file the last six years of tax returns in order to consider them in compliance.
Of course, if the IRS filed an SFR for you, it may be wise for you to file a return for that year to reduce your liability, even if the year is beyond the last six years.
2. Obtain your transcripts for the years you intend to file.
Next, pull your account transcripts and wage and income transcripts for the years you intend to file.
You can do this by calling the IRS or on the IRS website.
3. Gather your other records for the years you intend to file.
Of course, while your account transcripts will give you information about any payments made on your IRS account for each year as well as any other account-level activity, and your wage and income transcripts will give you information about any income reported to the IRS for each year, there is other information you may need to complete your tax returns, such as:
- Information about your dependents — their personal information as well as the amounts you paid for their care for each year
- Business expenses against any 1099 income you earned
- Itemized deductions not reported on any tax form reported to the IRS, such as charitable contributions, non-cash contributions, DMV fees, property taxes not reported on Form 1098, medical expenses, and more.
4. File your returns.
The last step, of course, is to file your tax returns.
Your tax software may be able to electronically file years within the last three years, but for years beyond that, you’ll have to paper file them.
You can find old Form 1040s and other types of tax returns on the IRS website.
How to Pay Taxes Due to Unfiled Returns
If you end up owing taxes to the IRS after filing your past-due tax returns, you have options.
You can, of course, pay off your balance in full. This will (obviously) stop future penalties and interest from accruing.
However, a better option — if you qualify for it — is an offer in compromise. An offer in compromise is an agreement you make with the IRS in which the IRS agrees to accept a lower amount to satisfy your tax debt than you actually owe.
That said, not all taxpayers qualify for an offer in compromise, so there are other options, such as a temporary hardship placement called currently not collectible status as well as installment agreements for taxpayers who wish to pay their balance over time.
For an overview of how tax relief works, read our article What Is Tax Relief and How Does It Work?.
Unfiled Tax Returns Frequently Asked Questions
Here are some frequently asked questions about unfiled tax returns..
What happens if I file my taxes late and I am due a refund?
If you file your taxes late and you are due a refund, you won’t owe any failure-to-file or failure-to-pay penalties, but you may lose out on your refund if you do not file your tax return before the three-year refund statute expiration date (RSED).