What is the IRS Statute of Limitations on Unfiled Tax Returns?

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What is the IRS Statute of Limitations on Unfiled Tax Returns?

Many taxpayers worry that the IRS will come looking for them. Even if you’ve filed your taxes on time, you may worry that you’ve made mistakes or underpaid your tax bill. If you have unfiled tax returns, chances are, you worry even more that the IRS will come for you. Of course, as time passes and you haven’t been the target of an investigation, you may wonder if there is an IRS statute of limitations on unfiled tax returns.

It would deliver peace of mind, after all, to know when you might be in the clear. Given that you may have years when you’ve filed taxes on time, followed by others when you didn’t file at all, it is important to organize your filing history, so you have a better sense of the big picture.

So, is there an IRS statute of limitations on unfiled tax returns? The short answer is no, but let’s dive deeper into some of the variables that could impact your vulnerability with the IRS. In other words, what happens when you have unfiled tax returns?

Financial Penalties

When you fail to file a tax return, you are automatically at risk of a number of consequences. Of course, one penalty is simply that — if you are owed a tax refund from the government — you won’t get the refund money. If you later realize you have unclaimed refunds, you only have three years to file your taxes and claim your refund.

You may also be charged a late filing (failure to file) or late payment (failure to pay) penalty. The IRS can charge a penalty of 5% on the balance of what you owe for every month you don’t file, up to a maximum of 25%. In addition to these penalties, if you have unfiled taxes, you will accrue interest on the outstanding tax balance owing, including penalties.

There are other financial penalties for unfiled taxes, as well, including missing out on tax credits or losses that can be carried from one year to another. With these financial penalties available to the IRS, it’s no wonder that taxpayers wonder if there is an IRS statute of limitations on unfiled tax returns.

Other Consequences

In addition to financial penalties, the IRS has workaround measures that can be applied to those who fail to file a tax return. In some cases, in absence of your tax filing, the IRS will complete a return for you. This makeshift document is known as a substitute federal return (SFR).

In lieu of your documents, the IRS will use information collected from W2s, 1099s or other documents from your employer, bank or other sources to compile a makeshift return on your behalf. Of course, there are plenty of financial downsides to you, as the taxpayer, when the IRS takes this action on your behalf.

An SFR will force you to miss out on deductions and credits. It will likely leave you with an overstated tax burden, as well. Some taxpayers find themselves owing money through an SFR, in years that they would have had a return if they had filed their own taxes. The good news is an SFR can be corrected or adjusted.

In addition, while the IRS has a statute of limitations on taxes you have filed — up to three years (and in some cases, six years or longer) to conduct an audit — this is not the case when the IRS has generated an SFR on your behalf. An audit on an SFR can occur at any point. In fact, there is no IRS statute of limitations on unfiled tax returns in general, which can leave you feeling exposed.

How Likely is an IRS Audit?

So, how worried should you be if you have unfiled taxes and there is no IRS statute of limitations on unfiled tax returns? How likely is the IRS to audit you or your business?

While there aren’t precise answers to these questions, unfortunately, the short answer is this: you are more likely than ever before to become the subject of an IRS audit. When the Inflation Reduction Act was passed into law in the summer of 2022, it put a target on those with unpaid taxes.

The Act earmarks approximately $80 billion for the IRS over the next 10 years. Included, is $46 billion intended to strengthen IRS enforcement. While a complete plan for the money has yet to be made public, it likely means more manpower, improved digital monitoring and better technology, to help the IRS find those in arrears.

As part of the same Act, the IRS is expected to raise $124 billion through enforcement. This means the government believes there are plenty of unpaid taxes to be recovered. With a large injection of funding and a clear goal to recover unpaid taxes, the IRS is poised to find and penalize those who have gotten away with unpaid taxes in the past.

In short, having unfiled tax returns puts you at greater risk for an IRS audit. The best way to start the clock on a statute of limitations is to file your back taxes. Remember — once you’ve filed your taxes, the IRS has only three years to make an audit.

If the idea of greater IRS enforcement makes you uncomfortable, based on your tax history, it is likely time to find the help you need. Enlist a team of experienced tax professionals, to help you sort through tax issues and avoid unwanted attention from the IRS.

Avoid IRS Exposure with the Right Team of Experts

If you are worried about the IRS statute of limitations on unfiled tax returns, chances are, you have taxes in arrears. Now that the IRS plans to increase enforcement, it is more important than ever to stay ahead of any advances they might make. With no IRS statute of limitations on unfiled taxes, audits can happen at any time, leaving you exposed to IRS penalties, from tax liens, bank levies and wage garnishments to possible incarceration.

With your financial well-being and peace of mind at stake, it’s easy to see how important it is to find the right team of tax experts. Even if you only need to catch up on tax filings to stay ahead of the IRS, a skilled tax team will help you stay organized and up to date.

As you look for the right team of tax experts, be sure to find people you trust. You want a team who will take the time to understand your personal situation. It is important to do your research. Read reviews and ask plenty of questions. When you’re confident you have the right team on your side, you’ll feel better prepared, no matter how the IRS proceeds.

At Franskoviak Tax Solutions, we have helped thousands of clients with tax planning for more than 30 years. We provide comprehensive tax services with first-class expertise and a personalized, boutique-style approach. Speak to our team about personal and business taxes, payroll taxes, IRS tax relief and tax problems such as IRS tax notifications, payroll tax debt, delinquent taxes and more.

Start with a free consultation—we’re here to help you get ahead of tax problems, organize and file any back taxes owing and avoid unwanted attention from the IRS.



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