Audits and tax notices

Unfiled Back Tax Returns

3 min read

IRS Definition:

File all tax returns that are due, regardless of whether or not you can pay in full. File your past due return the same way and to the same location where you would file an on-time return. If you have received a notice, make sure to send your past due return to the location indicated on the notice you received.

More from H&R Block:

If you’re required to file a tax return and don’t, you’re not in compliance with the IRS. It can take months to resolve the issue. The time and effort it takes depends on the number of returns you need to file and how far the IRS has already gone to enforce the late returns.

The statute of limitations starts to run only when you have filed the return and paid the tax, so the IRS can audit years that would otherwise be closed if you haven’t filed a return and paid the tax.

What if you have multiple unfiled back tax returns? How many years back should you file to get in compliance with the IRS?

The answer lies in a little-known IRS policy statement that states that taxpayers must file six years of back tax returns to be in good standing with the IRS. The policy also states that IRS management would have to approve any deviation from that rule. Sometimes, IRS managers will require tax returns from even further back than six years.

If you are filing back tax returns, keep in mind:

Confirm that the IRS is looking for only six years of returns. Call the IRS to confirm the unfiled years and file only those returns.
The IRS doesn’t pay old refunds. You can only get refunds for returns filed within three years of the due date of the return. Refunds for prior years are lost.
Transcripts can be helpful in completing back tax returns. Prepare an accurate return that matches IRS records. Call the IRS to request your wage and income transcripts. Make sure the return reports all items on the transcript. Without this match, the IRS can question the accuracy of your return.
There can be hefty penalties on balance-due returns. Years with tax balances due will have associated penalties, so request penalty abatement, if applicable. Use first-time abatement for the first year if you qualify. Otherwise, consider reasonable-cause arguments for late filing and payment to get some relief from penalties.
The IRS may have filed a return for you. The IRS usually starts this process, called a substitute for return (SFR), about three years after the due date of the return. When you file a return to replace an SFR, the IRS will closely look at the return and compare it to information the IRS has on file. It will take the IRS more time than usual to process the replacement return. It can take more than four months in some cases.
If you owe and can’t pay, set up a payment agreement. Remember to get into an agreement if you can’t pay. There are several types of agreements, depending on your financial circumstances.