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What If You Don't File a Tax Return?

By: Tax Hotline
Spring 2019 (Vol. 37, No. 1)

If you don’t owe tax or you were due a refund, you won’t get in trouble for not filing or filing late. If the IRS owes you, you can go back three years and claim the money due you for each year with no penalties. Right now, you can file for tax years 2016-2019 and collect any refunds.

However, if you owed the IRS and you just didn’t file or you have a past bill that’s still unpaid, that’s a problem. A balance due on a federal tax return means you owe the tax, a Failure to File penalty, a Failure to Pay penalty, plus interest. Technically, if you knew you owed money and just willfully failed to file you could also face large criminal penalties, including fines and imprisonment.

The good news is the IRS would much rather just collect their money than send people to jail and you might be surprised to find how willing they are to work with you to get caught up. There are several programs in place that help citizens come clean and get back on track.

If you don’t have any money to pay the IRS, you may qualify for hardship status. This is also referred to as currently not collectible (CNC) or status 53. You will usually need to give the IRS detailed financial information (Form 433A for individuals and Form 433-F for businesses) and convince them you cannot afford to pay, and that forcible collection would cause severe financial hardship.

The IRS Fresh Start initiative began in 2011 and is a series of changes that the IRS has made to the tax code to help struggling taxpayers meet their obligations. If you don’t qualify for hardship status, it’s still possible to have penalties and fines waived or reduced if you failed to file due to circumstances beyond your control such as illness, death of a loved one, depression, job loss or bad advice from a professional. You may also be eligible for an Administrative Waiver and First Time Penalty Abatement or Statutory Exception.

There are also several options for setting up payments to help you avoid liens, garnishments or other penalties. You may also be eligible to negotiate an Offer in Compromise which allows you to settle your debt for less than you owe.

To be eligible for a Fresh Start, you need to be current for this tax year. Once you’re ready to file and pay, you will usually need to file returns for every year you’ve missed. You will need to gather old W-2s and 1099s. If you don’t have all the information you need to file, you may want to request a transcript from the IRS with Form 4506-T, Request for Transcript of Tax Return. Check the box on line 8 and the IRS will send a transcript with information from any W-2s or 1099s that were filed for you that year. If there are none on file, you may have to make your best guess when it comes to income, deductions, filing status, etc.

If you owe over $50,000 and are worried you could be criminally liable, you may consider the voluntary disclosure route. The IRS will generally consider your voluntary compliance along with all other factors in the investigation in determining whether criminal prosecution will be recommended. The IRS states it does not guarantee immunity from prosecution; however, may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source income.

According to the IRS: A voluntary disclosure occurs when the communication is truthful, timely, complete, and when the taxpayer shows a willingness to cooperate with the IRS in determining his or her correct tax liability; and the taxpayer makes good faith arrangements with the IRS to pay in full.

The voluntary disclosure may be an option for you if the IRS has not already initiated an investigation into your noncompliance such as:

  • A letter from an attorney which encloses amended returns from a client which are complete and accurate (reporting legal source income omitted from the original returns), which offers to pay the tax, interest, and any penalties determined by the IRS to be applicable in full and which meets the timeliness standard set forth above.

  • A disclosure made by a taxpayer of omitted income facilitated through a barter exchange after the IRS has announced that it has begun a civil compliance project targeting barter exchanges; however the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intention to do so.

  • A disclosure made by a taxpayer of omitted income facilitated through a widely promoted scheme regarding which the IRS has begun a civil compliance project and already obtained information which might lead to an examination of the taxpayer; however, the IRS has not yet commenced an examination or investigation of the taxpayer or notified the taxpayer of its intent to do so.

  • A disclosure made by an individual who has not filed tax returns after the individual has received a notice stating that the IRS has no record of receiving a return for a particular year and inquiring into whether the taxpayer filed a return for that year.

Unpaid Taxes Can Affect Your Travel Plans

Individuals with “seriously delinquent tax debts” are subject to a new set of provisions courtesy of the Fixing America’s Surface Transportation (FAST) Act, signed into law in December 2015. These provisions went into effect in February 2018.

The FAST Act requires the IRS to notify the State Department of taxpayers the IRS has certified as owing a seriously delinquent tax debt and requires the State Department to deny their passport application or deny renewal of their passport. In certain instances, the State Department may revoke their passport.

Taxpayers affected by this law are those with a seriously delinquent tax debt, generally, an individual who owes the IRS more than $51,000 in back taxes, penalties and interest for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired, or the IRS has issued a levy.

Taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt by doing the following:

  • Paying the tax debt in full

  • Paying the tax debt timely under an approved installment agreement

  • Paying the tax debt timely under an accepted offer in compromise

  • Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice

  • Having requested or have a pending collection due process appeal with a levy

  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief

However, a taxpayer’s passport won’t be at risk under this program if an individual:

  • Is in bankruptcy

  • Is identified by the IRS as a victim of tax-related identity theft

  • Has an account that the IRS has determined is currently not collectible due to hardship

  • Is located within a federally declared disaster area

  • Has a request pending with the IRS for an installment agreement

  • Has a pending offer in compromise with the IRS

  • Has an IRS accepted adjustment that will satisfy the debt in full

For taxpayers serving in a combat zone, and who also owe a seriously delinquent tax debt, the IRS postpones notifying the State Department and the individual’s passport is not subject to denial during this time.

Taxpayers can request a payment agreement with the IRS by filing Form 9465, Installment Agreement Request. Taxpayers can download this form from and mail it along with a tax return, bill or notice. Some taxpayers may be eligible to use the online payment agreement to set up a monthly payment agreement for up to 72 months.