The IRS expects you to file and pay your taxes on time each year. When you fail to submit a return, you put yourself at risk of IRS collection activities that could result in financial hardships for you and your family.
However, you may believe that the IRS cannot touch you after a certain number of years has passed since you last filed your return. In fact, the IRS has almost unlimited capabilities and a generous amount of time when it comes to collecting on a tax debt that you owe to the government.
The Statute of Limitations for Unfiled Taxes
A common belief that many taxpayers have is that the IRS cannot take any actions against them if 10 years or more have passed since they last filed a tax return. It is true that the IRS can only collect on tax debts that are 10 years or younger. However, that 10 years does not begin when you neglect, either accidentally or willfully, to file your return.
Instead, the clock for the 10 years begins when the IRS notices your missing return, you file the return to get caught up with your taxes, or the IRS files and submits a substitute return on your behalf. Once that clock begins, you have a limited time frame within which to act. If you fail to act quickly, you could put yourself at risk for civil or criminal penalties.
Further, the IRS will only allow you to collect on tax refunds owed to you within the last three years. If you are owed a refund from four years ago or later, you forfeit the rights to that money. It instead becomes property of the United States Treasury.
Finally, you may want to file your missing tax returns so you are properly credited for those tax years. Missing returns result in you not being credited as having paid into the tax system for those years. You could shortchange yourself when you want to collect on Social Security and Medicare benefits later after you retire.
Given this information, you may be convinced to file and submit your missing returns as soon as possible. If you need assistance or are not sure about what forms to use to file your taxes, you should contact a tax professional to help you.
More about the Statute of Limitations
The statute of limitations for the IRS to collect on taxes that you owe to the federal government begins when it notices that you have missing returns. It also begins when you decide to file and submit those returns yourself.
However, the statute of limitations can also begin after other events take place. For example, if you file an appeal on your back taxes, you start the proverbial clock all over again. Likewise, if you file an Offer in Compromise or OIC, you also begin the statute of limitations all over again for the IRS.
Another way that the statute of limitations can begin all over again for your past due taxes is if you sign a waiver or if you file for bankruptcy. Either of these circumstances begins a new 10-year statute of limitations even if several years have already passed since the IRS noticed that you were missing a return.
You should not worry so much about the statute of limitations, however, if you have missing tax returns. It is more important that you get them filed and figure out a way to pay what you owe to the IRS.
Substitute Tax Returns
In some instances, the IRS will take it upon itself to file missing tax returns on your behalf. These returns are called Substitute for Returns or SFRs. They are filed after you either unwittingly or purposefully neglected to fail returns of your own.
When the IRS files an SFR for you, it will assume that you are single with no dependents to claim. This means that this SFR will not take into account any deductions for which you are eligible. You could end up owing a lot more money than necessary and certainly than if you filed your own tax return.
Even with an SFR filed for you, you still have the option of filing and submitting an amended return, however. You can claim the correct filing status and lay claim to deductions to which you are entitled. You can also significantly lower your tax obligation to the IRS.
You must act quickly to file an amended return after an SFR has been filed for you. If you do not file an amended return, the IRS can proceed with collection activities against you for the amount of money that it says you owe on the SFR that it filed for you.
Possibility of Criminal Charges
When it comes to collecting back taxes owed to the federal government, the IRS enjoys a broad reach and a large arsenal of methods to obtain that money. It will first send you a Notice and Demand for Payment to which you have 10 days to respond.
If you do not respond to this notice, the IRS will send out another notice, this one called a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. You have 30 days to respond to this notice and request a hearing to challenge the amount that the IRS says you owe.
If you do not respond to the final notice, the IRS then has leeway to pursue the debt through levies, garnishments, and asset seizures. It has the right to:
- Levy assets like real estate or your house
- Garnish your wages or salary
- Seize your retirement savings
- Claim any dividends from investments
- Seize cars, boats, RVs, jewelry, and other belongings
- Claim the value of your life insurance policy
Once the IRS has begun any of these collection activities, it does not usually cease to collect even in cases of dire financial hardships. It often takes you filing for bankruptcy to stop them. Even at that, the bankruptcy court may allow the IRS to lay claim to some assets to settle your tax debt.
Moreover, if you are seriously delinquent with your tax filings, the IRS could fine you up to $100,000 if you are a private taxpayer or $200,000 if you are a corporation owner. You also could face a year in jail for each year you did not file a tax return.
You can avoid these civil and criminal penalties by filing your missing returns immediately. If you are unsure of what years you are missing returns or need help getting the returns filed in a timely manner, you should contact a tax specialist to assist you today.
The statute of limitations that the IRS has for collecting tax debts from taxpayers is virtually unlimited as long as those returns remain unfiled. It also can restart the collection timeline under certain circumstances.
You can escape this statute of limitations and get caught up with you owe the IRS by filing missing returns immediately. You also can get the help you need by contacting a tax professional to assist you in filing and submitting returns that the IRS is missing from you.