Tax Delinquency from 1 to 10+ Years

What Are Your Tax Obligations? Who Has to File Taxes?

If you earn any form of income in the U.S., then you likely have to file a tax return. Most citizens or permanent residents will need to file since anyone who earns over $400 in self-employment income is required to file, as well as anyone who earns an income that’s higher than the filing requirement. This income amount varies based on your filing status. 

For 2023, taxpayers who are single must file a return if they earn over $13,850. The threshold is double for married filing jointly taxpayers. Taxpayers who are considered the head of household need to file if they earn over $20,800. 

You might not be obligated to file, but you might want to if you had any income tax withheld from your pay. In those situations, you could be eligible to receive a tax refund. You might also qualify for additional tax refund money if you are eligible for the premium tax credit, additional child tax credit, refundable American opportunity credit, or a credit for federal tax on fuels.

What Happens if You Don’t File Your Taxes?

So, what happens if Tax Day comes and goes without you submitting your returns? What happens if you don’t file taxes for 3 years, 5 years, or even longer? Some taxpayers have waited over a decade to address tax problems, or even longer.

When you don’t file your taxes in time, the first thing the IRS will do is determine if you were required to file. They’ll make this determination based on the data they have available to them, most commonly income reported to them by other people or businesses, like your employer or your business’s credit card processor. After that, the consequences vary based on the situation and how long it’s been since you filed.

Substitute For Return

If the IRS feels you didn’t file a tax return when you should have, they may prepare their own version of a tax return for you, called a Substitute For Return (SFR). This is a bare-bones tax return based on the information the IRS has, and usually consists of all income they can attribute to you and a standard deduction. Without any other deductions, credits, or even accounting for business vs. personal income, these often show more tax than a properly filed return. This also provides an avenue for the IRS to assess penalties and interest.

IRS Penalties and Interest

Failure to File Penalty

A failure to file penalty will be leveraged against you when you miss the tax deadline, and the IRS determines that you should’ve filed. The amount of this penalty depends on the amount of unpaid taxes due on the original due date as well as how long you let your account go unpaid.

A failure to file fee will be 5% of your overall unpaid tax burden, but it will compound every month that you do not pay or file your returns. This penalty cannot exceed 25% of your overall tax bill.

Failure to Pay

If you get charged a failure to pay penalty, then you’ll pay 0.5% of your unpaid taxes every month until you pay your debt in full. This penalty will compound every month up to 25% of your overall tax burden.

If you’re facing both a failure to file and a failure to pay penalty in the same month, then the IRS will reduce the failure to file penalty by the failure to pay penalty. In total, you’ll get charged a 5% penalty for each month you continue to be late on paying what you owe.

Accumulating Interest

The IRS does charge interest on your penalties, and this interest will continue to accumulate and compound until you pay what you owe. Thus, the penalties for not paying taxes for 5 years are going to be significantly higher than the penalties for a few months of delinquency. Interest will continue to accrue until you pay everything you owe, even if you agree to a payment plan with the IRS.

IRS Collection Action

IRS Tax Levies and Liens

Financial fees and penalties won’t necessarily prompt a taxpayer to pay the IRS what they owe since it only increases the tax burden to a higher level. The IRS will continue to attempt to get the taxpayer to pay what they owe without further intervention, but after giving you several months of grace, the IRS has the authority to take further action like liens and levies against you.

The IRS may decide to seek out a lien against your tax account. You will be informed regarding the lien by mail. A federal tax lien gives the IRS the legal authority to resolve your tax debt by securing your property or assets. An IRS tax levy describes what happens when the tax agency decides to enforce a lien and seize the property or asset. A levy could target your property, car, bank accounts, real estate, or any other assets you own or have control over.

Levies will remain in effect until your debt is paid in full. If you don’t own any significant assets when you fail to pay but purchase a home a few years later, then that home could be at risk. The IRS could have the authority to seize it, sell it, and use the money to pay off your tax debt, penalties, and interest.

IRS Wage Garnishment

One common type of consequence you could face for tax delinquency is wage garnishment. If you receive a paycheck from an employer and you’re facing an IRS levy, then the tax agency has the right to take a portion of your paycheck to resolve the debt. This garnishment will continue until you’ve paid off everything you owe in full.

IRS Criminal Charges

If you haven’t filed taxes in 10 years or more, then it’s important to carefully consider your situation. There are specific actions and behaviors that give the IRS the right to prosecute you criminally. Tax fraud and evasion, for instance, is defined as the willful and intentional act of attempting to avoid your tax obligations by lying or misrepresenting your tax situation. 

When your tax situation has dragged on for years, it’s often best to consult with a tax lawyer. There is a statute of limitations on debt collection and criminal prosecution, but your own behavior could impact your rights. For instance, if you contact the IRS about a payment plan or suddenly file a very delinquent return, then you could inadvertently restart your statute of limitations. 

To ensure you act in a way that upholds your rights, consult with an attorney about your tax situation before making any big moves. To get help now, contact us at McLaud Law today by calling 585-397-7785.

Consequences by the Year

Here is a breakdown of the consequences you’re likely to face for not filing a tax return, broken down by the year. Every situation is different, but this is how a typical situation may unfold.

• Year One – Once the IRS realizes that you haven’t filed, the agency will send you a notice about not filing. If the agency assesses tax against you, they will also add penalties and interest. You will not have a tax return to verify your income to lenders, and thus, you may not be able to get a mortgage if you’re thinking about buying a new home.
• Year Two – Interest and penalties will continue to accrue on your account. When added together, the failure to file and failure to pay penalty can get up to 50% of your unpaid tax bill. Interest is on top of that amount.
• Year Three – After three years, you can no longer claim tax refunds. If you were due refunds for previous years, work with a tax attorney to file those returns as the refunds can help to cover any future tax debts you owe.

The consequences continue to get worse the longer it’s been since you filed. Luckily, in most cases, even if you haven’t filed in 10 years, the IRS will generally only make you complete the last six years of returns. However, the agency may require more years if tax evasion was involved or if you owed a substantial amount of money. 

FAQs: The Many Consequences of Tax Delinquency

Do you have more questions about being late on your taxes and the consequences associated with it? In most cases, it’s best to discuss your specific circumstances directly with a tax resolution attorney. The right lawyer will use their knowledge, experience, and expertise to carefully consider your unique personal circumstances, tax laws, and IRS expectations. They’ll help you come up with a personalized strategy for dealing with your tax issues. 

That said, we’ll go over some general answers to some of the most frequently asked questions about tax delinquency below.

How Many Years Can I Go Without Filing Taxes?

You can go a lifetime without ever paying your taxes, but you’ll continue to face increasing consequences until you pay what you owe. There is a statute of limitations on collecting tax debt, though, which is ten years from the date on which the IRS files a Deficiency Assessment. If you haven’t filed taxes in 15 years, then you may be off the hook for that debt that’s over 10 years old, but you will still owe for the most recent years. 

What’s more, you could reactivate the statute of limitations on a past debt if you attempt to file for that year, make a payment for that year, or attempt to create a payment plan for those years.

I’m Not Required to File Under IRS Laws But Could Get a Refund If I Did. What Are the Consequences of Not Filing?

In these circumstances, you will not face consequences other than not receiving your tax refund. If you do want to receive your refund, then it’s important to file. You have three years from the filing deadline to claim a tax refund. Otherwise, the money is lost forever. Taxpayers leave millions on the table every year in unclaimed tax refunds.

How Many Years Back Can You File Taxes?

You are always welcome to make your tax situation right by filing back taxes from any point in your tax history. With that in mind, you’ll only be eligible for a tax refund if you file your returns within a three-year period. In most cases, the IRS only requires taxpayers to file the last six years of returns, but that can vary based on the situation so you should talk with a tax lawyer if you’re unsure. 

Do Delinquent Taxes Impact Your Credit Score?

The IRS does not report tax delinquency directly to the credit bureaus, which means having tax debt will not impact your credit score directly. Delinquent taxes could impact your ability to take out new loans and lines of credit, though, if your potential lender finds out about the delinquent taxes. Tax liens, for example, are public, and creditors can easily find them,

Does IRS Tax Debt Expire?

Yes. There is a statute of limitations on federal tax debt, which is ten years. After that period, your tax debt technically expires. However, if you don’t file a return, the timer never starts. There is no statute of limitations on unfiled returns.

For example, if you have unpaid taxes from a return you filed 10 years ago, that debt is likely to expire soon. If you have an unfiled return from 10 years ago, the IRS has a legal right to go back, assess the tax debt, and hold you responsible. Then, once the tax is assessed, the IRS has 10 years to collect it.

Will Filing for Bankruptcy Resolve my Tax Debt?

Filing for bankruptcy can help you get rid of some tax debts, but not all tax debts can be discharged in bankruptcy. Generally, tax debt needs to be at least three years old before it can be discharged. You cannot discharge tax debt associated with unfiled returns.

What If I Can’t Pay Off my Tax Debt?

If you can’t pay off your tax debt right away, then you simply need to get informed regarding your options. In almost all situations, the IRS will be willing to work with you based on your ability to pay. An experienced tax professional like those at McLaud Law can help analyze your situation and help you decide what is the best resolution for you.

Do I Need to Talk to a Tax Expert?

You might want to talk to a tax expert if you’re facing significant tax delinquency consequences like wage garnishment, a levy, tax lien, or criminal charges. Even if your tax situation hasn’t progressed to the level of these consequences, it might be a good idea to talk to a tax expert if you know you’ve fallen behind on your taxes and you’re not sure how to get back in good standing with the IRS. The right tax attorney will help you clearly understand your rights and options when it comes to paying back the IRS. The right attorney will also be able to guide you through the process of applying for any tax debt relief that you’re eligible for.

Do You Need to Speak to a Tax Resolution Lawyer?

Now that you know more about what happens if you don’t file taxes, you might be considering the many ways to get back in good standing with the IRS. Consulting with a tax professional or a tax lawyer might be a good decision for you depending on your circumstances, but you can also attempt to resolve your situation on your own by negotiating directly with an IRS agent.

Here at McLaud Law P.C., our team of skilled tax professionals can help you determine your options, review the consequences you’re potentially facing, and navigate the possible solutions that can help you resolve your situation. Contact our office now to schedule a free consultation and discuss your tax situation in more detail.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.