What Happens if You Don’t File Taxes for 3 Years?

If you haven’t filed taxes in three years, you can lose the chance to claim a tax refund. Additionally, the Internal Revenue Service may file a tax return (called a substitute for return or SFR) on your behalf, and then, the agency will try to collect the tax bill.

Catching up on unfiled returns can seem daunting, but ignoring the situation can lead to serious trouble. To get help right away, contact us at the W Tax Group today. We can help you get caught up on filing taxes, and if you owe a tax liability, we’ll help you make arrangements with the IRS.

Key takeaways

• Refund – You have three years from the original filing deadline to claim a refund.
• Late penalties – If you file late and owe tax, you will incur penalties.
• Penalty abatement and payments – A tax pro can help you request penalty relief and payments on the tax owed.
• Substitute for return – The IRS may issue a substitute for return if you don’t file. 
• Collections – If the IRS assesses tax against you, they can involuntarily collect it through garnishments and seizures.

What to Expect If You Haven’t Done Taxes in 3 Years

The consequences of not filing vary based on whether you owe tax or the IRS owes you a refund. If you don’t file by three years after the deadline, you forfeit your chance to claim a refund – every year, taxpayers leave millions of dollars of unclaimed refunds on the table. 

If you owe tax, you risk the IRS issuing a substitute for return and assessing tax against you. Additionally, you may face personal financial consequences, such as trouble securing a loan. Here is an overview of what to expect if you haven’t filed taxes in three years:

• Refund – Your 2024 tax return is due April 15, 2025, which means that you must file by April 15, 2028, if you want to claim a refund. As an added bonus, the IRS will add interest to your refund, back-dated to the original due date.
• Penalties – If your tax return results in a tax liability, you will incur failure-to-pay and failure-to-file penalties on your account. These start to accrue the day you miss the filing deadline and can each get up to 25% of your unpaid tax liability, making the total penalty up to 50% of your tax due.
• Interest – The IRS will also add interest to the unpaid balance. Interest starts the day you are late, and it compounds daily until you pay. 
• Substitute for return – When you don’t file a tax return, the IRS can issue a substitute return on your behalf. If this shows that you owe a tax liability, the IRS can enforce collection actions against you.
• Inability to prove income – If you don’t file taxes, you will not be able to prove your income to lenders on the Free Application for Federal Student Aid (FAFSA) or for social assistance applications.
• Risk of evasion charges – Not filing tax returns is not necessarily a crime, but if the IRS believes that you willfully failed to file in an attempt to evade taxes, you may face criminal charges. Failure to file is usually a misdemeanor but can be a felony in certain situations. 

IRS notices about unfiled taxes

If you don’t file, the IRS will send you a notice telling you to file or let the agency know why you didn’t need to file. If you file a return showing a refund but didn’t file in previous years, the agency may send you a notice saying that it’s holding your refund until you prove that you didn’t need to file for those years.

The timing varies. For example, in 2024, the IRS sent out over 100,000 CP59 notices to high-income filers who hadn’t filed between 2017 and 2021. However, in other cases, taxpayers receive notices about their unfiled returns just a couple of months after the missed deadline. 

What if I haven’t filed business taxes in three years?

If you have not filed business income tax returns, payroll returns, or other tax returns for your business, you will face penalties and interest. You also risk the IRS filing a return on your behalf and assessing taxes against you. Once the taxes are assessed, the IRS can take significant measures to collect them, including wage garnishments and asset seizures. 

With payroll taxes and certain excise taxes in particular, the IRS may assess a Trust Fund Recovery Penalty. That is 100% of the unpaid tax, and it can be assessed against individuals, not just the business. 

Substitute Tax Return When You Haven’t Done Taxes in 3 Years

Failing to file your tax return can lead to the IRS issuing a Substitute for Return (SFR). An SFR is a tax return that the IRS generates using information received from third parties.

For instance, the IRS can generate a substitute tax return using W2 forms from employers, 1099-G forms that report unemployment or other government money, 1099-NEC forms from people who pay you as an independent contractor, and 1099-INT forms showing interest income from your bank.

Even if the IRS has the correct income information from you, substitute tax returns often show a much higher tax bill than you would incur if you had filed your own tax return. Here’s why:

• The IRS uses the standard deduction on SFRs. If you normally itemize, this will drive up your tax liability.
• The filing status on an SFR can only be single or married filing separately. If you usually use married filing jointly or head of household as your filing status, this will most likely increase your tax bill.
• SFRs don’t include dependents. This increases your tax liability because you don’t get the tax credits related to children or other dependents.
• Substitute returns don’t include business expenses. As a result, you end up facing tax on your gross business income rather than on your net self-employment income.

If your SFR shows that you owed taxes for the years that you didn’t file a tax return, the agency will send you a notice about your unpaid tax assessment. If you agree with the tax bill, you can pay it in full or reach out to a tax professional to talk about setting up monthly payments or applying for other tax relief programs.

However, if you don’t agree with the SFR, you need to file your taxes for the years associated with the SFR. You must reach out to the IRS within 90 days of receiving the notice about the SFR. Otherwise, the tax assessment becomes final, and the IRS will start to collect the overdue taxes. The IRS may issue a federal tax lien, garnish your wages, levy the funds in your bank account, seize your assets, or take other actions to collect the back taxes.

How to Catch Up If You Haven’t Filed for Three Years

To catch up on your unfiled returns, start by gathering the information you need to file a tax return. You need the following information from each unfiled tax year:

• Income documents.
• Information about unearned income, such as investment income.
• Revenue and expenses from your business.
• Details on estimated tax payments.
• Receipts for medical bills, state and local taxes, charitable donations, and other deductions if you plan to itemize.
• Information about your dependents.

Depending on your situation, you may need additional tax documents to file, but your tax professional can let you know exactly what you need for each tax year based on your unique situation.

How to file if you are missing documents

You can contact payers directly to request old tax documents. For instance, if you don’t have a W2 wage statement, you can call your old employer and ask for one. 

Alternatively, you can set up an online account on the IRS website to access wage and income transcripts. The online account shows the last 10 years of documents. You can apply through the mail using Form 4506-T (Request for Transcript of Tax Return) or have a tax pro obtain these documents for you.

Why You Should File Taxes as Soon as Possible

When someone calls us and says, “I haven’t done taxes in 3 years,” we usually advise them to file their tax returns as soon as possible. Generally, the only exception is in cases where the taxpayer didn’t need to file a tax return and isn’t going to claim a refund. Here are the reasons that you should file your taxes as soon as you can.

• To Claim Tax Refunds – If you haven’t filed for three years, you can still collect tax refunds on the last two years, and depending on the date, you may even be able to claim a tax refund on the return from three years ago. 
• To Reduce the Failure-to-File Penalty – The failure-to-file penalty is 5% of the tax debt owed from your return, and the IRS assesses this penalty every month until you file. It can get up to 25% of your balance. The sooner you file, the sooner the IRS stops adding this penalty to your account.
• To Reduce the Failure-to-Pay Penalty – The failure-to-pay penalty isn’t one of the IRS’s most significant penalties, but it is 0.5% to 1% of the unpaid taxes owed every month. Once you file and pay your taxes, you don’t have to worry about this penalty anymore.
• To Avoid a Substitute for Return – It’s easier to file your returns proactively than to deal with an SFR. As explained above, SFRs are notorious for overstating your taxes owed, and once the IRS has used an SFR to assess tax, it can start collection actions against you.
• To Avoid Enforced Collection Actions – If the SFR shows that you owe a tax debt from your unfiled federal taxes, the agency can start collection actions. This can include federal tax liens, garnishments, levies, and more.
• To Get Into Compliance – The IRS will only allow you to set up monthly payments or apply for offers in compromise or other relief programs if you are compliant with filing obligations. Generally, that means that you need to file (or prove you aren’t required to file) returns for the last six years.
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• So You Can Apply for Loans – In a lot of cases, lenders use tax returns to see your adjusted gross income. This is especially true if you are self-employed or applying for a mortgage. Once you file your old returns, you have proof of income that you can use when applying for loans.

The consequences can be even worse if you haven’t filed for 10 years or if you’re dealing with business taxes. However, the benefits of catching up can be even more compelling in these situations.

What If I Haven’t Filed Taxes in 3 Years and I Can’t Afford to Pay

A lot of people think that if they can’t afford to pay taxes, there is no reason to file a tax return. This is absolutely not true. Even if you owe tax that you can’t afford to pay, you should still file. This helps you to minimize failure-to-file penalties. If you pay taxes late, the penalty is much lower than the penalty for failing to file.

Also, once you’ve filed taxes, you can work with a tax professional to set up a payment plan or apply for other IRS tax resolution options. Here are the options for paying taxes once you’ve filed a return:

• Payment plan — This allows you to pay your taxes in monthly installments.
• Offer in compromise — If you qualify, the IRS will let you pay off your tax bill for less than you owe.
• Partial payment plan — You make monthly payments until the collection statute expiration date. Then, the IRS waives the remaining balance.
• Currently uncollectible status — The IRS stops collection actions on your account if you can prove that you can’t afford to pay your taxes without suffering economic hardship.

Depending on the situation, you may also qualify for penalty abatement, innocent spouse relief, or other programs.

FAQs 

What if I haven’t filed state taxes for three years?

State revenue agencies all have their own rules and regulations for delinquent tax returns and unpaid taxes. However, in most states, if you file taxes late, you will incur a failure-to-file penalty based on the total unpaid taxes. In some states, you can even lose your professional license or have your business shut down for failure to file and pay taxes.

What if I haven’t paid taxes in three years?

If you have filed tax returns but haven’t paid in three years, you have a lot of options, but you need to act quickly if you want to prevent the IRS from taking collection actions against you. When you contact a tax professional, they can talk with you about your tax debt and help you find the best resolution options for your situation.

How long can you go without filing taxes?

The amount of time you can fly under the IRS’s radar depends on the number and value of income documents the IRS receives in your name. It also varies depending on other issues – for example, the IRS paused many collection actions during the COVID pandemic.

Can you file taxes after three years?

Yes, you can file taxes for up to 10 years in the past and even further back in some cases. However, you will only be able to claim a refund for up to three years after the filing deadline.

Will the IRS pursue criminal charges for unfiled returns?

The IRS typically reserves criminal prosecution for cases involving willful evasion or fraud. Voluntarily filing your missing returns reduces the risk of criminal charges. If you’re worried about criminal exposure, contact a tax attorney – you may need to get back into compliance through the IRS Criminal Voluntary Disclosure program.

What should you do if the IRS files a substitute return?

File your original tax return immediately to potentially lower your tax liability, as substitute returns do not include deductions, credits, or exemptions. If you agree with the amount due shown on the SFR, make arrangements to pay it as quickly as possible so that you avoid penalties. 

How far back can the IRS require you to file taxes?

The IRS generally requires the last six years of returns to get back into compliance, but if substantial income was not reported, they may require you to file for more years. 

Can you negotiate with the IRS if you owe for multiple years?

Yes, once you file your old returns, you can work with the IRS to set up payments or apply for settlements on the full balance due, even though the tax debt is from multiple years. 

Get Help With Unfiled Taxes

Worried about not filing your taxes for the last three years? Wondering about the consequences of not filing for other lengths of time? Want to get caught up and not sure where to start? Then, contact us today. We can help you resolve your tax problems.

Our tax attorneys can help you file your past-due tax returns. Then, we can help you work with the IRS or your state to create a plan to take care of your tax, penalty, and interest.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg