Unfiled Tax Returns

Most individuals are required by law to file an individual income tax return with the Internal Revenue Service, State (if applicable), and local government (if applicable) by April 15th of each year, absent an extension or other legally prescribed tax return date.

Not filing your tax return is against both the criminal and civil law - regardless if you owe tax or not. Both the IRS and the State have programs to enforce tax filing compliance and utilize greater technology and resources to identify people with unfiled tax returns.

Substitute for Return (SFR)

If you do not file a return, one of the many things that the taxing authorities can do is prepare and file a “substitute return.” The IRS or other tax agency like the Franchise Tax Board (FTB) can file a “substitute return” on your behalf. They will use any information they have regarding your income for the year, such as the income reported by your employer or any interest or dividends from financial institutions and they may actually “make-up” income amounts based on a variety of highly arbitrary factors. For instance, if you have a professional license, such as a real estate license or contractor’s license, the tax agencies will assign you industry average income, regardless if you actually earned that income or not. Further, the SFR will not include other information that would reduce your taxable income such as charitable contributions, educational or childcare expenses, or mortgage interest. Consequently, the IRS will assign you taxes that are much more than you really would owe, and they will impose penalties and interest on top of that amount.

The IRS can then begin to collect that amount by seizing your bank account, seizing your paychecks or even filing a tax lien on any real estate or other property you own. They routinely impose income and asset seizures. Even if you cannot afford to pay the taxes by the deadline, simply filing a return may reduce the amount of taxes and penalties that you could otherwise owe.

What if I don’t owe taxes?

Taxpayers who do not owe taxes should still file a tax return by the deadline. First and foremost, if you meet the filing requirements, you are required by law to file the return. Second, you may be entitled to a refund and failing to file tax returns will bar you from collecting your refund. Further, if you do not file a return and establish that you do not owe taxes, at some point, the IRS or State may file a “substitute return” for you and the then believe that you do owe taxes and proceed with collecting the money they believe you owe. Even if you are not required to file a tax return, you may wish to do so anyway to start the running of the statute of limitations so that later you do not have to explain why you were not required to file a tax return.

What else can happen if I don’t file a tax return?


Typically having unfiled tax returns will not land you in jail. However, the law does authorize prison sentence and criminal fines for not filing tax returns. Every year, the IRS chooses to prosecute a few individuals who have unfiled tax returns as part of their overall filing enforcement strategy. That is, they basically take a few people and make an example out of them by charging them with tax evasion, attempting to evade tax, failure to file, conspiracy to defraud, etc. You do not want to be one of these people. Some recent cases include:

USA v. Brett and Renee Dirr, charged with failure to file tax returns, tax evasion

USA v. Lauryn Hill, accused of failing to file returns.

Money penalties

The United States Code sets forth civil and criminal penalties for those who do not file tax returns on time. The Internal Revenue Code section 6651 allows the IRS to impose a penalty of 5% of the taxes that would have been due on the tax return for every month the tax return is late, to 25%. This is a civil penalty and may be imposed whether or not the failure to file was willful or fraudulent. If it is found that a failure to file is fraudulent, the penalty can increase to 15% of the tax for each month, and can be as high as 75% of the total tax.

Internal Revenue Code Section 7203 provides criminal penalties for those who willfully fail to either file their tax return or pay their taxes on time. In addition to the civil penalties listed above, the taxpayer may be found guilty of this crime and may be fined up to $25,000 and/or sentenced to prison for up to one year.

We can help you with your unfiled tax returns

There are many factors to be considered when resolving back tax returns with the Internal Revenue Service and Franchise Tax Board (or other taxing authority) including but not limited to, the number of years at issue, SFRs, Statutes of Limitations on Collections, assistance with record organization, etc. As a general rule, the longer the problem festers, the more difficult and complicated it may become to resolve. Therefore, if you have failed to file tax returns or have some other tax problems, contact Moskowitz, LLP for an attorney-client privileged consultation either in person or by telephone.

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