A delinquent tax return is any tax return that has not been filed by the deadline set by the IRS. Failing to file your taxes on time can result in serious consequences, including penalties, interest, and the potential for enforcement actions such as tax liens and levies.
The IRS imposes a Failure to File Penalty on delinquent returns, which is typically 5% of the unpaid tax for each month (or part of a month) that the return is late, up to a maximum of 25% of the unpaid tax. In addition to this, interest on the unpaid taxes accrues from the original filing date.
If you fail to file a return for multiple years, the IRS can file a Substitute for Return (SFR) on your behalf, which often results in a higher tax liability because the IRS does not consider deductions or credits you may have been eligible for. Once an SFR is filed, the IRS may initiate collection actions to recover the unpaid taxes.
To avoid these penalties and enforcement actions, taxpayers with delinquent returns should file their missing returns as soon as possible, even if they cannot pay the full amount owed. Filing a return will stop the Failure to File Penalty, and taxpayers can then work with the IRS to arrange payment plans or explore options like an Offer in Compromise.