Consequences of Unfiled Taxes and What to Do Now

Despite common belief, filing unfiled tax returns regardless of how many years have passed is not as scary as it may sound. Do not be deterred from doing so even if you do not currently have the funds to pay for the taxes. In fact, not filing your taxes at all can often have greater penalties and be more detrimental to your financial situation than being unable to pay. Ultimately, the faster you file your taxes the better. In this case the phrase, ‘better now than never,’ could not reign more true.

Penalties for Unfiled Tax Returns

While many people avoid filing their tax returns because they are unable to fulfill the payments, the penalties and added fees are far worse for not filing at all versus being unable to pay. In best case scenarios, you may even be due a refund without realizing. Keep in mind, the IRS will no longer honor this after a certain period of time. The following are the results unfiled tax returns:

  • Failure to File Penalty : If you fail to file your taxes when taxes are owed, the IRS will charge 5% of the full amount due for each month that taxes are unpaid and unfiled. The maximum for the standard failure to file penalty is 25% of the original unpaid tax amount (can be up to 75% when negligence or fraud is involved). If taxes were filed and not paid, the penalty would only be .5% a month.
  • Loss of Using Potential Tax Credits : Tax credits that you may have been able to reduce your taxable income with may not be allowed to be taken at a future date if taxes are filed late.
  • Loss of Refund : If you are owed money from the IRS or state and do not file your tax return within 3 years of it being due you will lose your rights to the tax refund.
  • Forced Collections: If taxes remain unfiled and unpaid, the IRS will eventually file a tax return on your behalf and come up with a tax amount that you owe (which is likely much more than what you actually would owe) and begin forced collection efforts. The IRS can legally seize just about any type of asset from a taxpayer that owes the IRS taxes.

The consequences for unfiled tax returns are clearly much greater than simply being unable to pay and the fees can accumulate rapidly. While generally only used as a scare tactic and highly unlikely, the IRS does have the legal right to fine individuals who have not filed with threats of up to one year in prison and the extravagant fee of $25,000. Remember, the longer you wait to submit your tax returns, the greater the penalty! If you are unable to pay, the IRS will work with you to figure out an alternative payment plan and will rarely prosecute any taxpayer that comes forward with unfiled returns and who is willing to cooperate.

How to Submit an Unfiled Tax Return

If you have unfiled tax returns it is important to take action as soon as possible. To file a late tax return follow the steps as outlined below:

  • Necessary documents: The first step in submitting a late tax return is to ensure that you have all of the required paperwork available. This most notably includes prior W-2s and 1099 tax documents. Do not worry if you are unable to locate this paperwork as your previous employer will often have copies. You may also contact the IRS. Employers are obligated by law to submit all earnings so they will likely have them and can be reached by dialing 866-681-4271.  If you are still unsuccessful, as a last result, you may submit a W-2 estimate instead.
  • Prepare tax forms: It is essential that you either prepare your tax forms for yourself or work with a tax professional. Regardless of whether or not the IRS has already prepared your forms for you it is still advisable that you complete them on your own terms as the IRS will not take out any deductions, leaving you with a significantly higher balance.
  • File all returns: Once you have completed all paperwork submit it to the normal address for tax returns unless otherwise noted. If you have received a request from the IRS to file back taxes, then send files to the address noted here.
  • Make payments: You will not be considered in good standing with the IRS until you have either completed all payments due or entered into a payment plan. If you are able to pay in full you can send a check, pay electronically or with cash. Note that any payments made in cash must be done in person and will not be accepted through mail.

If you cannot pay your taxes in one lump sum, remember that you are not alone. Understanding this, the IRS has issued a number of payment options. The most common agreements reached for those who cannot pay are as follows:

  • Installment Agreement: This agreement is the most popular payment plan issued by the IRS to help taxpayers fulfill their obligations on back taxes. Under this agreement, the individual is allowed to pay back taxes through a series of monthly payments. With this, the length, monthly payment and due date are unique to each circumstance.
  • Offer in compromise: Through this payment option the taxpayer is permitted to settle the amount of taxes owed for a smaller amount. In this tax settlement option the IRS must assess that they will never be able to receive the full amount owed. This agreement is only issued in rare circumstances and is very complex.
  • Declared uncollectable: While this is not technically a payment plan, if issued it will provide you with more time to come up with the money owed for taxes. In order to be approved you must demonstrate to the IRS that you are not in the position to pay current taxes owed in the near future. The IRS will then place a hold on collecting taxes but will seek an update of your financial situation every year or so.

Overall, remember that it is never too late to submit your taxes and that the penalties will only increase and the problem cannot be ignored forever. While the IRS may be slow, do not underestimate them and rest assured that if you do not reach out to the IRS regarding your unfiled taxes, they will contact you. Be aware that the IRS tries to be accommodating to individuals with all forms of financial problems and they offer different alternatives for every taxpayer to get back into good standing with the IRS.

This guest post was provided by BackTaxesHelp.com, a website that offers self-help tax resolution guidance and services to taxpayers to aid in resolving tax problems. Visit their site to learn more about filing back taxesIRS penalties , tax settlements, and more.

oXYGen Financial
11680 Great Oaks Way, Suite 175 | Alpharetta, GA 30022
Phone 1.800.355.9318 or 770.777.0427

Request a FREE consultation: www.oxygenfinancial.net

oXYGen Financial, Inc. co-CEO Ted Jenkin  is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.

Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS. NFPAS does not provide tax or legal advice.   This site is published for residents of the United States only. Registered Representatives and Investment Advisor Representatives of NFP Advisor Services, LLC (NFPAS) may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFPAS Compliance Department at 512-697-6000.   PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. NFP Advisor Services, LLC makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is NFP Advisor Services, LLC liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves


My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

Read More About Ted Here

Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA's BrokerCheck website.

No Comments

Leave a Comment