Unfiled Tax Returns

April 1st is a dreaded day for any taxpayer. Just half of all taxpayers manage to prepare their tax returns and file them with the IRS prior to the deadline. The rest usually follow with a couple of weeks delay. Weeks sometimes turn into months and even years. The agency estimates that 10% don’t file their tax returns at all, though the real figures are much higher. Of course, it’s a crime not to file your returns if you owe taxes to the government. Depending on the case, non-filers can pay interest on their due taxes, incur financial penalties proportional to the taxes owed and even serve jail time for severe tax evasion.


Due taxes are owed forever and interest keeps running indefinitely

Nothing will happen if you don’t file your taxes on April 1st. Usually, the IRS will give taxpayers plenty of time to voluntarily submit their returns.

But just because you haven’t heard from them immediately, it doesn’t mean they have forgotten.

In fact, the IRS uses very sophisticated computer systems which collect and cross-reference information from various records and databases to find discrepancies between the income you receive and the tax returns you file.

The list includes, but is not limited to:

  • W-2 forms
  • 1099 income reports
  • Employers records
  • Credit report databases like Experian
  • Records of banks, credit companies, mortgage providers
  • Property and DMV registries

All of this happens automatically, in real time, for hundreds of millions of Americans. In this digital age, where information is increasingly being stored and processed by computers, your chances for outrunning the IRS forever are just theoretical.

Eventually, the system will recognize you’ve not filed your tax return and start sending you notices, asking you to comply. If you continue to ignore them, your case will be forwarded to an IRS employee which will take over.

If you fail to comply after numerous notices, letters, phone calls and even visits by the IRS, they can and will calculate tax for you. The agents will start with the information they have and guestimate everything else, usually missing numerous exemptions and deductions you would normally take into account. The result, more often than not, is a substantially higher tax figure in your name.


Criminal charges can only be brought up for tax returns in the past 6 years, meaning you will not go to jail. Either way, unless you owe millions to the IRS, the chances of them putting you behind bars in an already overcrowded prison system are slim.

However, taxpayers should know that there is no time limit (or mercy) for civil penalties. Due taxes are owed to the IRS forever. If the agency discovers you have not filed tax returns, they can slam you with a civil penalty in addition to the taxes you already owe, as well as interest up to date.

Depending on the case, penalties may be:

  • Filing late tax returns – civil penalty up to 25% of owed taxes.
  • Errors and discrepancies in tax returns – civil penalty up to 20% of owed taxes.
  • Filing a false tax return – felony conviction with up to 3 years in prison and a fine up to $100,000.
  • Criminal conviction of tax evasion and fraud – up to 5 years in prison and a fine up to $100,000.
  • Intentional tax evasion and fraud – civil penalty of 75% of owed taxes.
  • Failure to file your tax returns AT ALL – 1 year in prison and a fine of $25,000 for each year you didn’t file a tax return
  • Lying to an IRS employee – up to 3 years in prison and a fine up to $100,000.

That’s a financial nightmare. Depending on the case, it may drain your savings, put you out of business and even turn your whole life upside down. Obviously, you want to avoid such a scenario whatever it takes.

The good news is the IRS doesn’t treat everybody the same way. While usually uncompromising with the taxes and interest being owed, proper handling of the encounter can dramatically reduce the financial penalties imposed by the IRS. The agents will differentiate between unintentional failure to file a tax return, an honest mistake – misrepresenting of facts, and a willful, knowledgeable, non-compliance with the law.

If you find yourself with a lot of unfiled tax returns with the IRS knocking on your door, we recommend you seek professional help.

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