What Happens When You Don’t File Your Tax Return

Because of the Covid-19 crisis the IRS extended the 2019 tax filing deadline until July 15, 2020. We are a week past that as of today. Did you file and pay your taxes? This year there were a lot of people who didn’t file because they had such financial issues that they figured that because they couldn’t pay the needn’t file. Or life gets in the way, and so on. So what happens next for those who didn’t file their 2019 taxes? Unfiled tax returns can bring a number of consequences back around, and none of them are pretty (for one thing, any refunds and credits expire after three years).

However, you can go a while without that unfiled tax return coming back to bite you. Finding an IRS notice in the mail among your magazine subscriptions and coupons is a classic jump scare, but it can be equally unnerving to hear nothing from the IRS for a long time. Now, this hardly means that they have simply forgotten or passed over your absent return. For one thing, if you’ve moved recently, they could be mailing to your previous address if you did not update it with them. But more generally, the IRS has limited resources. Sometimes they can’t immediately address every case that comes their way. Rest assured, they will come to collect in one form or another. It’s only a matter of time.

Aside from the inevitable (and heavily penalized) collections process, unfiled tax returns can complicate other aspects of your life. Say you’re about to make a big life purchase. Most of us have one we want or plan to make. Maybe you need to borrow money in order to make this purchase, but maybe you’re not a W-2 employee. The institution that’s going to lend you the money is going to need some other way to verify your income: a tax return. Not having yours available is not necessarily going to make the loan a no-starter, but it is going to make it far harder for a lender to trust you. This applies to student loans as well, which only compounds upon the fact that the FAFSA requires federal income tax returns.

Substitute for Return (SFR)

Returning to that eventual collections process mentioned before, the IRS may choose to file a Substitute for Return (SFR) on your behalf. If this happens, any refunds, credits, and the like lose their three-year shelf lives. So if any unpaid balance is assessed on that Substitute (and bolstered with penalties), there is no built-in cushion to soften it, and it all turns into debt. As with all IRS actions, you will be notified if a Substitute for Return is on the table, and be given a window in which to rectify your situation. But once that window closes, standard IRS collection actions can proceed, and make a hard situation even harder. If you have unfiled returns and need help resolving them, a tax relief service may be just what you need.