Behind on Tax Returns? How to File Unfiled Returns and Get Back in Good Standing

If you have not filed a tax return in a year or more, you are not alone, and the problem is almost always fixable. The longer you wait, the worse it gets: penalties grow, refunds expire, and the IRS may file a return for you that ignores every deduction you are entitled to. Here is how to catch up.

What happens when you do not file

• Failure-to-file penalty: 5% of the unpaid tax for each month or part of a month the return is late, up to 25%.
• Failure-to-pay penalty: 0.5% of the unpaid tax per month, up to 25%.
• Interest on unpaid tax and penalties, compounded daily.
• Lost refunds. If you were owed a refund, you generally have three years from the original due date to claim it. After that, the money is gone.
• Substitute for return. The IRS can prepare a return for you using the income reported by employers and banks, with no business expenses, dependents, or deductions, and then bill you for the result.

If you were owed a refund, there is no failure-to-file penalty. Many people who stop filing are actually owed money.

How many years do you need to file?

The IRS generally asks for the last six years of returns to put you back in good standing, though it can ask for more. In practice, if you file the last six years and pay or arrange to pay what you owe, the IRS usually does not pursue older years unless there are unusual facts. Your state may have different rules.

The catch-up process

• Get your IRS transcripts. Wage and income transcripts show every W-2, 1099, and other form reported under your Social Security number. Account transcripts show whether the IRS has filed a substitute return or assessed a balance. A CPA can request these with your authorization.
• Rebuild business records. If you are self-employed, reconstruct income and expenses from bank statements, card statements, and invoices. Reasonable reconstructions are acceptable when receipts are missing.
• Prepare the returns. Each year is prepared on that year's forms and rules.
• Replace any substitute returns. Filing your own return usually replaces the IRS version and reduces the balance.
• Address the balance. Options include paying in full, a short-term extension, a monthly installment agreement, or in some cases an offer in compromise.
• Request penalty relief. First-time abatement or reasonable cause can remove some penalties.
• Stay current. Make estimated payments for the current year so a new balance does not build up while you resolve the old ones.

Should you come forward first?

Yes. Filing before the IRS contacts you shows good faith and usually leads to a smoother result. The IRS rarely pursues criminal charges against people who come forward voluntarily and file accurate returns. If you have income that was not reported anywhere, or foreign accounts you did not report, talk to a professional before filing, because there are specific programs for those situations.

Business returns count too

Partnerships and S corporations that do not file face a penalty for each owner for each month the return is late, even if no tax is owed. Unfiled payroll tax returns are more serious, because the IRS can hold owners personally liable for withheld taxes that were not paid. Deal with payroll filings first.

OICPA's tax compliance team prepares prior-year returns, our catch-up bookkeeping team rebuilds missing records, and our IRS notice response team handles penalty relief and payment plans.

Frequently asked questions

I am owed a refund for a year I did not file. Can I still get it?

Yes, if you file within three years of the original due date. A 2023 return, for example, must generally be filed by April 2027 to claim a refund.

Can I go to jail for not filing?

It is very rare for people who come forward and file voluntarily. Criminal cases typically involve deliberate evasion, such as hiding income, and usually start before the taxpayer comes forward.

What if I cannot pay what I owe?

File anyway. The failure-to-file penalty is ten times higher than the failure-to-pay penalty. A payment plan can be set up once the returns are filed.

I do not have my old W-2s and 1099s. What can I do?

Your IRS wage and income transcript lists the forms reported to the IRS, which is usually enough to prepare the returns.