Delinquent or Unfiled Tax Return Consequences for IRS Taxes

unfiled tax returnIf you fail to file your federal tax return and you owe taxes, there can be serious consequences. Even if you don’t owe any tax, it may be in your best interests to still file. Here’s a look at what happens if you don’t file your tax Federal tax return. Many states have similar consequences. In fact, states have the power to do a few things the IRS is unable to do.


If you fail to file a Federal tax return by the due date, you face a failure-to-file penalty if you owe taxes. That’s 5% of the balance for every month you don’t file. This penalty maxes out at 25%. If you file at least 60 days late, your minimum penalty is the lesser of $205 or 100% of your tax owed. If you don’t owe any tax, these penalties don’t apply, but you can face other issues.

No Refund

If you are due a refund, but you don’t file, you will not get the refund. The former general rule of thumb applies to federal and most states with an income tax. You have three years to file your federal return, but after that, you lose the opportunity to claim your refund.

No Losses Can Be Carried

When you have business or investment losses, the IRS allows you to carry forward those losses to offset future years’ earnings. However, you need to file a return the year the loss occurs, so the IRS knows about it. If you fail to file, you cannot carry losses forward from that year.


Potential Loss of Tax Credits

If you qualify for a tax credit like the Earned Income Tax Credit (EITC), you have to file a return to claim it. That is a refundable credit that puts money in your pocket. If you don’t file, you lose the tax credit.

Substitute for Return Consequences

In some cases, when you don’t file a tax return, the IRS automatically completes a substitute federal return (SFR) for you. This return contains information from W2s, 1099s, or other forms the IRS has received from your employer, your bank, or other entities. Typically, the SFR only has one exemption, no dependents, and the standard deduction.

If you qualify for more than one exemption, have dependents, or itemize instead of claiming the standard deduction, an IRS-prepared SFR will show a higher tax liability than you would owe if you filed yourself. For example, if you are really due a refund, the SFR may show that you owe money to the IRS.

Statute of Limitations to Audit Never Begins

When you file your tax return, the IRS has three years to audit it. After that point, the statute of limitations kicks in, and the agency can’t audit that return. However, if the IRS generates an SFR for you, that can be audited at any time. Again, if you file, you avoid the SFR. The IRS usually waits a few years after the due date to complete the SFR.

You May Not Qualify to Include Taxes in a Bankruptcy

To qualify for both Chapter 7 and Chapter 13 bankruptcy, you need to be current on your tax filing obligations. In most cases, you must have filed the last two years of returns for Chapter 7 and the last four years of returns for Chapter 13.


Jail time is rare but possible. Under federal law, you can face up to a year in jail and up to $25,000 in fines for not filing your return. The penalties are even stricter if you commit fraud. However, you cannot go to jail just for owing taxes. You can only go to jail for not filing, tax fraud, or for purposefully evading taxes

Loan Complications

If you don’t file a tax return, loans are much more difficult to obtain. Generally, when you apply for a mortgage, personal loan, business loan, or a loan for higher education, financial institutions will want to see copies of filed tax returns.

Serious Collection Activity

If you don’t file and you owe money, the IRS could start some serious collection activities. That may include:

  • Tax Liens

    This is when the IRS files a public document called “Notice of a Public Tax Lien.” Consequently, the taxes you owe show up on your credit report. This negatively impacts your credit.

  • Wage Garnishment

    IRS wage garnishment takes place when the IRS contacts your employer to have wages withheld from your paycheck to satisfy IRS taxes owed.

  • Bank Levies

    The IRS can contact financial institutions or banks you do business with to levy your bank account.

  • Other Types of Property Seizure

    This is when the IRS seizes other types of assets in order to sell them to receive money to cover the tax amount owed. 

Referred to a 3rd Party Liability Collection Company

If you owe taxes and you don’t file, eventually you may be assessed taxes. If you fail to pay taxes or come to an agreement with the IRS or with the State regarding unpaid tax liabilities, your account could be referred to a third-party collection agency.

Filing your tax return is very important. Even if you can’t pay, you should always file. If you can’t file on time, you can get a six-month extension easily. Note that the tax extension is just on the tax return filing. The consequences for having unfiled tax returns vary depending upon if you owe taxes or are owed a refund, this guide goes over the consequences by year for having unfiled taxes. For more information on how to file unfiled tax returns, you can refer to this guide here on filing unfiled tax returns.

Find and Assess Licensed Tax Professionals To Solve Your Tax Issues

Select Tax Agency/Agencies
e.g. 10011 or New York, New York

Find and Assess Licensed Tax Professionals To Solve Your Tax Issues

Select Tax Agency/Agencies
e.g. 10011 or New York, New York