If you haven’t filed your income tax this year or previous years, your best recourse is to file it as soon as possible.

The reasons for not filing do not matter to the process. The IRS offers several tools and resources, including the Interactive Tax Assistant, to get you started.

What Not Filing Income Tax Might Mean

There are several possible consequences if you have not filed your income tax this year or for several years.

As a taxpayer, you may be subjected to penalties, including the failure-to-file penalty. This may be avoided if you have a good and reasonable cause.

Taxes that have not been paid by their due date may also result in the failure-to-pay penalty. Some penalties can be avoided if you can show reasonable cause to the IRS.

You can also apply to extend the time to pay your taxes because of undue hardship. Begin by filling out Form 1127.

The IRS imposes interest on taxes not paid on their due dates. These rates apply even if you received and used an extension to pay your taxes.

If your current tax debt includes penalties, those penalties will also accrue interest.

If you have an upcoming refund, you will not be charged a penalty for failure to pay. But there is a risk of losing the refund if you delay.

You can also lose a refund if the statute of limitations expires. Refund claims must be made within three years of the original due date.

After three years, the statute of limitation prevents you from claiming a refund. It also prevents you from applying for further credits.

Restrictions cover overpayments, withholding taxes, and other tax years where you may have underpaid.

Before any considerations are made about unpaid taxes, the taxpayer must file first.

There is no statute of limitation on the IRS discovering, assessing, and collecting unpaid taxes from businesses or individuals.

Understanding the IRS’ Substitute Return

Imagine you are a freelance graphic artist who accepts projects from agencies and clients. You neglected to file your 2019 and 2020 tax returns due to hardship.

All your clients send their 1099-NEC forms to you and the IRS. Eventually, the IRS will notice the missing tax returns.

The IRS system will pull up all your existing tax documents, including prior year returns. It will then calculate the tax you owe based on that data.

When calculations are complete, the IRS will send a letter stating you owe a set amount. This is based on the information they already hold.

When the IRS mails an assessment, they have already determined what you owe. W-2s, 1099s, and other old documents may be used in the computation.

Options for Taxpayers

Taxpayers have two main options when facing a substitute return.

  • Petition the Tax Court within ninety days after receiving the IRS substitute return.

  • File a tax return.

Tax professionals agree it is better to file an original tax return. Waiting for the IRS to send a substitute return can delay resolution.

The processing time for filing is similar to the time required to appear before Tax Court.

You have about thirty days from the date the IRS assessment letter was sent to act.

You can:

  • Mail the IRS a signed and completed original tax return.

  • Mail a dated and signed consent letter allowing the IRS to assess and collect.

  • Mail a statement explaining why you are not legally required to file.

If you need professional help with your IRS Installment Application in California, contact us.

At Tax Law Advocates, our team of enrolled agents, tax attorneys, and accountants are ready to help you resolve issues with the IRS and state tax authorities.