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How Many Years Does the IRS Go Back to Collect on Unfiled Tax Returns?

How Many Years Does the IRS Go Back to Collect on Unfiled Tax Returns?

December 15, 2021

It’s estimated that more than 12 million people will need to file back tax returns each year. For reference, a common misconception is that the IRS will not go past six years to assess a tax definition along with penalties. The IRS has the ability to go further as there is no statute of limitations. 

Tax refunds for withholding or estimated taxes returns must be filed for claim within three years of the return due date. This includes extensions. Refunds can be frozen if there is an unfiled tax return for the previous year. If left unreceived, an assessment may be made through the ASFR (Automated Substitute for Return) program. This will automatically apply the refund to any balance due.

What Happens if a Tax Return is Late or Stays Unfiled?

If a tax return remains unfiled, the IRS can file a return for you. This return is called a “substitute for return” or “SFR” and will not allow any deductions, credits, or preferences. If filing late, a late filing penalty will also be included in the SFR. If a return is late or filed late, it is considered a severe noncompliance issue. 

Most late filers will be given multiple notices and the IRS rarely prosecutes those who voluntarily file an accurate return in a timely manner.

Both a late filing or failure to file/pay incur penalties assessed on the balance due – and if you do not owe, you will not incur a late filing or payment penalty unless an additional assessment is completed. 

What Do You Do After Filing Your Late Tax Return?

You can file a penalty relief request if facing a payment penalty. These consist of two options: First-time abatement (FTA) and reasonable cause. A clean compliance record, you can request relief via the FTA. If a taxpayer was late due to an unforeseen circumstance outside of their control, they may request their abatement of their penalties for reasonable cause. 

If you do owe, an immediate payment is not required. Once the tax is assessed, you will need to make collection arrangements which can include:

  • An extension to pay
  • A payment plan
  • File for hardships status as currently not collectible
  • Request an offer in compromise to settle the balances owed

Options may vary depending on the circumstance surrounding your late filing. However, no matter the circumstance, the IRS will expect you to have determined a method of payment.

How to Get Your Account Back in Good Standing

First, you will need to make sure that all unfiled and late tax returns are filed. Next, determine your method of payment if you owe. After taking care of the past, ensure that all documents required during tax time are on-hand and ready for the IRS. 

Submitting future tax returns promptly and accurately will build a better reputation (including filing history, prompt payments, and document accuracy) if another situation arises due to late filing or not filing of your tax returns. 

Not sure how to keep your account in good standing? Read through these IRS suggestions for a great tax season in 2022.


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