Unfiled tax returns occur when taxpayers fail to submit their required federal or state income tax returns by the filing deadline. Failure to file can result in severe penalties and interest, as well as enforcement actions by the IRS, such as substitute returns, levies, and liens.
Taxpayers who have unfiled returns should act promptly to avoid escalating consequences, including:
- Failure to File Penalty: Typically 5% of the unpaid tax per month, up to 25%.
- Failure to Pay Penalty: Adds an additional penalty for taxes that remain unpaid.
- Interest charges: Interest accrues on both the unpaid tax and penalties.
The IRS may file a Substitute for Return (SFR) if the taxpayer fails to file, which often results in a higher tax liability since deductions and credits are not considered. Filing past-due returns as soon as possible can help reduce penalties and prevent aggressive collection actions.