- July 25, 2022
- Kelvin Birk
- Tax Law
We know that if you have ever failed to file a tax return, you may be concerned that the IRS will catch up with you. But how long should this be a genuine concern for you? Common questions our clients ask us include 1) How far back can the IRS go for unfiled taxes? 2) How many years does the IRS go back to collect on unfiled tax returns? 3) Can you go to jail for unfiled taxes?
We answer and thoroughly explain each of these questions and more below.
How Far Back Can the IRS Go for Unfiled Taxes?
We understand that discussing delinquent tax returns can be uncomfortable. The amount of back taxes you can owe may rise significantly after the IRS adds interest and penalties to the original tax balance. You may even end up with a more significant tax issue than you originally started with.
To attain good standing with the IRS, they require you to ensure your last six years of tax returns are filed accurately and up to date. For some clients, this could mean going back and mass filing six years of delinquent tax returns. This may sound intimidating to some people, but the weight of correcting your potential tax issues is worth taking the time to set right.v
How Many Years Does the IRS Go Back to Collect on Unfiled Tax Returns?
If the IRS goes back to collect on someone’s unfiled tax returns before they take the opportunity to rectify the problem, they could face immense fees. The IRS can go back up to six years to collect on missing tax returns.
Sometimes, if you don’t file, the IRS will file a tax return for you. This creates a tax bill or record for the tax year in question. This IRS-created return is called a substitute for return (SFR). Then they take action to ensure the bill gets paid. They do this by sharing the SFR with your state of residence so your state can start collection activity.
Having the IRS do your taxes for you may initially sound like a pretty good deal; however, they often fail to include information that could lower your taxes, such as relationship status, dependents, exemptions, deductions, and expenses. An SFR tends to overestimate tax liabilities, and these tax returns often hold the recipient liable for larger tax payments than they would owe had they prepared the tax return properly when it was due.
Can You Go to Jail for Unfiled Taxes?
Many of our clients are surprised to learn that there is possible jail time for failing to submit a tax return. Under federal law, 26 U.S.C. § 7201, a willful attempt to evade taxes may be punished by up to five years’ imprisonment and $250,000 in fines.
To find someone guilty of tax evasion, three elements must be proven by the government:
- That the person had a substantial tax deficiency;
- That the person attempted to evade paying their income tax; and
- That the person acted willfully.
If someone were found guilty of tax evasion, then, according to I.R.C. § 7201, the maximum punishment for an individual is:
- The costs of prosecution; and
- A fine of up to $250,000; and/or
- Up to five years’ imprisonment.
This means that someone could go to jail for the federal offense of unfiled taxes, but people do not automatically go to jail for unfiled taxes. A few things would need to occur before anyone finds themselves in jail for their unfiled taxes.
How Is Someone Jailed for Unfiled Taxes?
First, the offender must have failed to file federally required taxes within the past six years. Then, the IRS will conduct a preliminary investigation to analyze whether criminal tax fraud or a related tax crime may have occurred. If sufficient evidence exists, then a subject criminal investigation is initiated.
During the subject criminal investigation, the IRS special agent will attempt to obtain the necessary evidence to prove the three elements of tax evasion. This evidence may include:
- Conducting surveillance
- Interviews of third-party witnesses
- Subpoenaing bank records
- Executing search warrants
- Reviewing financial information.
Once all the facts and evidence are analyzed, a decision is made on whether the analysis yields sufficient proof of criminal activity. If it does not, then the investigation is discontinued. However, if it does, then the agent creates a special report that other officials will review. If the other officials decide that the party should be criminally prosecuted, then a prosecution recommendation is forwarded to the relevant authorities.
If the relevant authorities accept the investigation for prosecution, then the case will be taken to federal court. Around 3,000 criminal tax fraud prosecutions are initiated each year. If the prosecution can obtain a guilty verdict or a plea deal, the possible sentence may include heavy fines, the cost of prosecution, and/or jail time of up to five years.
If you think you may be at risk of an IRS investigation into your unfiled taxes, call Birk Law Firm at 573-332-8585.
How Can You Prevent IRS Repercussions for Unfiled Taxes?
If you have failed to file tax returns in the past six years, it is not too late to correct the situation. A highly experienced tax dispute lawyer can help you fix your situation before it escalates further. Our skilled tax disputes attorney can help you submit missing tax returns or even correct tax returns that you may have submitted incorrectly in the past several years.
By submitting or correcting your tax returns before an investigation or prosecution is formalized, there is an excellent chance that we can help you to avoid any further penalization by the IRS. Additionally, we can help ensure that you are only paying the taxes truly owed, including all exemptions, credits, and deductions that your situation would have allowed you to claim at that time.
If you think you may be at risk of an IRS tax audit, you should speak with Birk Law Firm’s knowledgeable tax dispute lawyers today. We can discuss your various legal options and how to best proceed to minimize the likelihood of IRS investigations, potential financial loss, and jail time.
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas. [ Attorney Bio ]