Unfiled Tax

Reasonable Cause for Penalty Abatement

How do you apply for reasonable cause when processing your penalty abatement?

For most instances, penalty abatement requests to the IRS are handled on a case by case basis. You should have a valid reason, or reasons, as to why you paid or filed late since you are not applying for a first-time penalty abatement (FTA). The reasonable cause becomes the most common reason in seeking penalty abatement.

You will qualify for this reasonable cause if the IRS is thoroughly convinced that you had a very legitimate reason for being unable to fulfill your tax obligations. They are also looking into the effort you’ve done. Let’s just say that if you claimed that you just felt lazy and decided to chuck your tax duties, then that’s a very unreasonable cause.

So, what can be considered as a Reasonable Cause

Any legitimate excuse for you to miss out the payment or filing on time can be looked into as a reasonable cause. The circumstances presented show that it was out of your control. As persistent as you were in trying to file, the extenuating situations made it impossible for you to do so.  

Let’s look into a variety of common examples for a reasonable cause:

  • There was death in the family or a close personal friend suddenly passed
  • You were stuck in rehab or you were serving a prison sentence
  • While abroad, you found yourself being held against your will
  • Because of a fire, a sudden flood, or other disasters, your records were inadvertently destroyed
  • There was a mail or transport strike, even a riot, and these civil disturbances prevented you from remitting your payment.
  • By some fluke, you were unable to compute the correct amount of tax to pay
  • A tax professional gave you ineffective advice even if this came from a competent and trustworthy source

What are the other details you can submit to prove reasonable cause?

These are some questions the IRS might ask if the above examples don’t apply to your situation:

  • What is your present circumstance and how did that prevent you from filing your taxes?
  • What are your other delinquencies aside from your tax debt?
  • Are you aware of the deadlines for filing and were you able to properly prepare?
  • What were other situations beyond the scope that caused you to be delinquent?  

If you have a history of paying late, the odds are against you. Please submit any medical records or newspaper clippings to prove your complex circumstance.

Compared to other tax debt settlements, the requirements for penalty abatement are not that stringent. The IRS wants to give this a personal touch because they really want to investigate that because of what you went through, filing your tax return became an unintentional miss.

Please consult with a tax professional to review if your reasons can be considered as valid. This paperwork needs to be submitted so the reasonable cause can be noted and your penalty abatement can be approved.

Unfiled Tax

What is a First Time Penalty Abatement?

When the IRS removes penalties on your tax debt, that is termed as first-time penalty abatement (FTA). Penalties arising from failure to pay, to file, and to deposit. Interest related to these penalties may also be removed.

The FTA is concerned with the following:

Failure-to-file If you fail to file or file late Penalty is 5% of your balance per month
Failure-to-pay (penalties related to an audit, but not accuracy-related penalties, may be addressed) If no payment was remitted Penalty is 0.5% of your outstanding tax debt per month
Failure-to-deposit (941s) If you didn’t deposit on time for payroll taxes or an incorrect amount was submitted Penalties can be erased if subsequently corrected


What are the three basic criteria to qualify for a First Time Penalty Abatement?

  1. For the past three tax years, no penalties (above $100) were incurred. In case you were penalized for underpaying the previous years, these penalties are not taken into account by the IRS.
  2. All required returns or extensions were properly filed. Any outstanding paperwork will disqualify you. Please make sure your submitted documents to the IRS are complete and in good order.
  3. For your outstanding debt, payment arrangements were made. Make sure your tax debt was paid in full or another payment arrangement is in effect. Regular tax payments are promptly remitted and this arrangement is properly followed.

Where can I apply for a First Time Penalty Abatement?

Go online, write a letter, or contact the IRS by phone. If you are found to be qualified, the IRS may address your concerns right then and there. Other times, once the tax debt has been settled, the IRS will acquiesce to removing the penalties.

If your request needs more time for processing, the penalties will continue to grow. But as long as you qualify for the abatement, these penalties will be taken out when the approval comes in.

What is the amount that can be abated?

The abatement is for penalties incurred in the first year and probably not more than $10,000.

If your tax penalties are more than a year old, the IRS needs “reasonable cause” to issue a removal. There may have been circumstances or situations beyond your control, but the IRS needs to see that you made the effort to pay, but unfortunately fell short.

Your records may have been destroyed by natural disasters like flood or fire. Due to a lack or records, there was an inability to calculate the amount owed. Maybe you were undergoing rehab or serving a prison sentence. Or you were held against your will here or abroad. There was a death in the family that greatly affected you. There was a mail or transport strike that prevented you from remitting the payment. A tax professional or an IRS rep gave you bad advice and info.

These are just some examples of a “reasonable cause” wherein that particular situation stopped you from fulfilling your obligation. The IRS will take this into consideration to see if a penalty abatement can be granted. Monitor your penalties or this will continue to pile up if you don’t address it straight away.

Unfiled Tax

What are the Consequences for Unfiled IRS Tax Return

When you were still in school, you would be punished for your tardiness. You are facing the same consequences at work when you come late and unprepared.

Filing late federal tax returns and owing back taxes will lead to serious drawbacks on your time and finances. If you don’t owe any tax, it is still reasonable to file to be on the safe side.

Below are the consequences of not filing your federal tax return on time. A lot of states are doing the same because they have the authority to do some of the things the IRS is incapable of doing.


If you don’t file a Federal tax return on its exact due date, you will face a failure-to-file penalty if you owe taxes. You will be paying an additional of 5% of the balance for every month you miss. The penalty can go up to 25%.

If you’re 60 days late, your minimum penalty is the lesser of $205 or 100% of your tax owed. But if you don’t have any tax debts, there are no penalties, but you may face other issues.

No Refund

You won’t get a refund if you don’t file. This rule applies to federal and most states with an income tax. You have a maximum of three years to file your federal return, but when you lapsed, you will lose the chance to claim your refund.

No Losses Can Be Carried Over the Next Years

A person with business or investment losses can be allowed by the IRS to carry forward those losses to not compensate the earnings in the succeeding years.

In the event that a loss occurs, you need to file a return to inform the IRS about this incident. If you don’t file, you won’t be allowed to carry the losses forward from that particular year.

Tax Credits Can Be Lost

If you are qualified for a tax credit like the Earned Income Tax Credit (EITC), you will need a filed return for you to claim it.

Tax credits are refundable and they can go back to your pocket. You must file a return to earn the credit and never lose it.

Substitute for Return (SFR) Drawbacks

In some cases, when your tax return remains unfiled, the IRS can automatically accomplish a Substitute Federal Return (SFR) for you.

The SFR contains details from your 1099s, W2s, and other forms the IRS took from your employer, your bank, or other entities. Most of the time, the SFR offers only one exemption, no dependents, and the standard deduction.

Unfortunately, if you qualify for more than one exemptions, have dependents, or have itemized deductions, the SFR will offer a higher tax liability compared to the amount you owed when you had filed the return yourself.

Statute of Limitations to Audit Will Not Happen

After you file your tax return, the IRS has three years to audit it. The Statute of Limitations kicks in, and the agency won’t be able to audit the return.

However, the Substitute Federal Return (SFR) can be audited at any time by the IRS.

This means that when you file on your own, the IRS won’t generate the SFR for you. The IRS will generate the SFR after a few years from the due date.

You May Not Include Taxes in a Bankruptcy

To qualify for both Chapter 7 and Chapter 13 bankruptcy, you need to file your taxes on time or on the most current year.

For Chapter 7, you must file the last two years of returns. Chapter 13 should have at least four tax returns filed.


There’s a rare chance for you to get in jail for being delinquent on your taxes. But it’s possible for you to face jail time.

Under the federal law, you can be imprisoned up to a year and pay $25,000 in fines for not filing your return. The penalties may be more rigid if you commit fraud.

Remember that you won’t go to jail for just owing taxes. But you can go to jail for not filing your taxes and for intentionally evading your responsibility.

Loan Complications

It will be very difficult to apply for a loan if you don’t file a tax return.

Loans such as mortgage, personal or business loan, and higher education loans, will require copies of filed tax returns. Your request will be denied if you don’t have any returns to show.

Serious Collection Activity

If you have unfiled taxes and back taxes, the IRS will be harsh in its collection methods:

  • Tax liens
  • IRS files a Notice of a Public Tax Lien ( the taxes you owe reflect on your credit report and your credit rating will be affected)
  • Wage Garnishment (when the IRS asks your employer to send a portion of your paycheck to the agency to satisfy the taxes owed)
  • Bank Levies (the IRs can ask the banks or financial institutions to levy your bank account)
  • Other Types of Property Seizure

Referred to a 3rd Party Debt Collection Company

If you have tax debts and you don’t file, your taxes will be assessed.

Failure to pay your tax due or going through an agreement with the IRS or with the State,  your account can be referred to a third party collection agency.

Filing tax returns is very crucial. You should file even if you don’t have enough cash to pay your back taxes. You can always get a six-month extension if you can’t file on time.

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Infographics Unfiled Tax

How to File Unfiled Tax Returns

If you missed filing last year’s tax return, then you can file retroactively.  It is always stressful to keep up with the time, but in most cases, you can prepare and submit most state tax returns late.

Failure to file Federal Tax Returns to both the IRS and State leads you to a lot of consequences. Filing a tax return is always in your best interest.

Steps in Filing Unfiled Tax Returns


Gather and Keep All Important Documents

Keep the W2’s, 1099’s, and all other necessary forms for the year that you missed filing the return.

If you have itemized deductions, you will need records and receipts to support your claims. If you don’t have those forms, you should contact your employer, former employer, or financial institution. You can get the figures for your wages on your last pay slip of the year.

However, if you cannot gather these documents, call the IRS at 1-800-829-1040 or request for wage and income transcript.

You may acquire 1099 and W2 information even if you don’t have them since the wage and income tax records are kept up to 10 years. If you are self-employed and accomplished 1099-D, the IRS wage and income transcripts will assess your income for a taxable year.

Besides those forms, bank statements may also help determine your income and expenses.

Get All Important Tax Forms

Filing back taxes will require you to use the tax forms for that particular year when you missed out filing. For instance, if you are preparing an individual tax return for 2016, then you need to accomplish Form 1040 for 2016.  You need to use the form for the same year since the rules and credit may change each year.

Old forms can be accessed online. And if you cannot find the one for that particular year, you may contact the IRS or your state’s Department of Revenue. However, there’s a less hassle when you use a software or hire a tax preparer.

Hire a Tax Preparer or Get a Software Program

Getting a tax professional’s help is optional, but this can make filing less cumbersome.

However, if you’re using a software program, you need to use the application for the particular year. You will need to buy a CD or download the software for that particular tax year.

A tax professional will take care of everything. They will find the right tax forms for you. But make sure to consult with the tax professional since some tax forms for a specific year may be unavailable.

Mail Your Tax Returns

Late or old returns cannot be emailed. Otherwise, you need to mail them to the IRS or your state’s revenue department. The address can be found on the tax return or tax return directions. However, if you have a notice telling you to file a return, you should use the address on that IRS letter.

Moreover, if you are working directly with an IRS Revenue Officer, you must address the returns to that particular person. If you’re confused on where to mail the return, you should contact the IRS or state directly.

Other Considerations

When filing old IRS tax returns, the IRS will want you to include the last six years. State tax laws, however, may have some different policies, so you must consult your tax professional (Enrolled Agent, CPA, or attorney).

Take note that filing your return is just a first step to prove the IRS that you already complying to the rules or demands set by the IRS or your respective state. Filing the tax return is also a wise technique to reduce the penalty and to gain the trust of IRS or state representatives who might be open to work with you to settle your tax obligations.

After all, it’s always best to seek a tax professional service when filing tax returns. The tax professional should start with an analysis on your financial condition and investigate on your tax problem(s). Some of the things that must be look into are: current income, assets, expenses, and tax transcripts.


Download this Infographic

how to file unfiled tax returns


Unfiled Tax

Unfiled Tax Returns: What You Need to Know

Below are some of the most common questions about unfiled or delinquent tax returns.

How Will I Know If I Need to File a Tax Return?

The IRS introduces Publication 17 each year that provides information on who needs to file. In 2016, those who were required to file were single taxpayers with income above $10,350 and married people (who filed jointly) with income more than $20,700. The threshold is quite higher for older individuals of more than the age of 65.

You must also file if you acquired more than $400 in self-employment income, if you sold a house, or if you have tips or wages that weren’t subject to Medicare or Social Security withholding.

What Will Happen if I Don’t File a Tax Return?

A sheer negligence will lead to a lot of repercussions if you don’t file a tax return.

Failure to file your tax return will prompt the IRS to charge you with 5% of your tax due as a penalty.

The penalty may accrue with the maximum failure to file penalty of 25%. You won’t be allowed for a refund. When you file bankruptcy, you cannot reason out the tax debt unless you are responsible for filing your returns.

The worst that you’ll ever experience is jail time and fines up to $25,000.

My W-2 Documents and 1099s are Missing. What to do?

You must call the business or organization that issued those forms if you accidentally lost or misplaced your W-2s or 1099s. Most companies would secure those forms for at least seven years, so their former employees will have access to those files when needed.

Otherwise, if there’s no success in getting those files, you may request for wage and income transcript(s) from the IRS. These forms can be accessed via IRS online portal.

How Will the IRS Notify Individuals Who Did Not File?

The IRS will mail you notices using the last address they have on file. The initial letters are reminders that you should file and settle your current tax balance.

Eventually, you will receive a notice asking you to file within 30 days—not later than this. If you overlook this initial warning, the IRS will proceed with sending more serious collection notices. After 2 or 3 years, the IRS will file a Substitute for Return (SFR), which means the IRS has already filed for you and will prevent you from getting all necessary exemptions, credits, and deductions.

What is a Substitute for Return (SFR)?

The IRS will complete a Substitute for Return on your behalf if you still neglect your duty of filing a return. However, you won’t be happy when you receive an SFR because this will credit you to a higher tax liability.

Do I Need to File a Return If I Don’t Have Any Tax Debts?

Technically, you don’t have to file a tax return if you are clear from any tax debts. But if you don’t prepare and send in a tax return, you may lose refund and experience some other repercussions.

Can Tax Penalties be Deducted from Tax Return?

No, tax penalties cannot be deducted on your tax return. Meanwhile, interest on tax debt for business taxes can be deductible.

Can You E-File a Late Tax Return?

You can only e-file tax returns that are late up to the maximum of six months after the due date. If you’re way too far behind, you must mail your return.

How Can I Send Late Tax Returns to the IRS?

If possible, you should deliver old returns to your local IRS office and ask for a receipt. If there is no office near you, you can mail the tax return. You will receive a receipt once the IRS receives the return.

However, hiring a tax professional will make is less stressful for you since he or she can do it for you.

Is It Too Late to File? Will I Receive a Refund for Late Returns?

The truth is: it is never too late to file.But you won’t receive a refund for late filing. You should file within three years from the due date to secure the refund.

If I Am Filing a Late IRS Tax Return, Can I Use the Current Year’s Tax Forms?

No, you must use the tax form for the year you are filing the return even you’re already years behind. Most of the old tax returns can be accessed through the IRS website. But if you can’t find the form for the year you are filing, you may ask for the form from the IRS to be mailed to you.

Another alternative is to contact a tax professional and request for a free consultation. Tax professionals are equipped with tax filing software to help you with filing back taxes.

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Unfiled Tax

IRS Failure to File Penalty: Penalties for Not Filing a Tax Return

You will be facing the Failure to File Penalty if you overlook your responsibility of filing the required tax returns

The IRS does not tolerate those delinquent taxpayers who do not file their tax returns. The very reason for an unfiled tax return is they don’t have money. 

You should avoid not filing tax returns because you’ll be facing higher penalties than your ordinary tax bill.  You will have more options if you comply or file tax returns on time.


What will happen when the IRS charges the Failure to File Penalty?

The IRS will gauge the failure to file penalty (FTF) the first day your tax return is late. One example is when you’re behind your taxes for many years and the federal income tax returns must be submitted on April 15. Once you fail to file, the IRS considers the penalty on April 16th.

You may request for an extension within six months. This extension will help prevent you from having a failure to file penalty. But you need to file only within the extension deadline, which is usually on October 15th.

A failure to pay penalty will be imposed if you don’t pay 90% of your taxes owed at the end of the deadline, which is on April 15.

The failure-to-file penalty is only applicable to those with tax debts. If you don’t have income tax debts, you will avoid this penalty.

The IRS won’t give you this penalty if you comply with your tax responsibilities diligently.


Standard Failure to File Penalty

The failure-to-file penalty takes away 5% of your tax liability. For instance, if you owe $5000, then the penalty will be $250, which is assessed the first day when the tax was filed late and the succeeding months until you filed your return. The maximum penalty is 25 percent of your balance, and the IRS will stop the charges when you have maxed out the FTF penalty.

So when you file 60 days late, the IRS charges a minimum failure-to-pay penalty and that is the lesser of $205 or 100% of the tax due.

Note:  If the FTF and the FTP happen within the same month, then the IRS will allow 5% of the total combined penalty.  Therefore, the FTF penalty amount is lowered by the FTP.


Failure to File Penalty When there are Negligence and Fraud

If you attempt to deceive the IRS by committing fraud by committing fraud or filing an incorrect return, then you will be facing higher penalties — and that is triple the amount

The monthly penalty will run up to 15% and the maximum penalty is 75% of the total tax debt. The worst that could happen is the delinquent taxpayer will be jailed.

Taxpayers who thought that filing is voluntary and are doing anything to trick the IRS may face Frivolous Tax Return Penalty. The penalty is $5,000 and $10,000 for married people filing jointly.


Failure to File Penalty for a Tax Exempt Organization

Tax-exempt organizations with filing requirements that have not filed the required return on the due date will be charged $20 per day the return is late.

The maximum penalty for any return is the lesser of:

  • $10,000
  • 5% of last year’s gross receipt


For instance, an organization with gross receipt more than $1 million for the year, the penalty is $100 per day up to a maximum of $50,000. However, if the organization has not been filing tax return for three years straight, it will lose its exempt status.

Failure to File Penalty for Partnerships & S Corporations

The schedule for filing an annual tax return for S corporations and partnerships is on the fifteenth day the third month, following the end of the tax year.


A penalty of $195 per month will be charged to each partner for up to a year. So, if a partnership (with four partners ) files three months late, the total penalty will be $2,340 (3 months x 4 partners x $195).

Additional penalties may apply if the partnership fails to furnish Schedule K-1s to its partners.

Failure to File Penalty for Corporations

The FTF penalty for corporations that do not file forms 1120 or 1120-A is almost the same with the usual FTF penalty for individuals.


An FTF penalty of 5% for unpaid tax for every month when the tax return is late. This can go up to the maximum of 25 percent.

When you overlook the filing of 941 forms or the Employer’s Quarterly Tax Form, the IRS will assess the Failure to File Penalty of 5% (or could go up to 25 percent)  per month on any tax balance. Form 940, or the Employer’s Annual Federal Unemployment Tax Return (FUTA) is also using the same rule.


Removing the Failure-to-File Penalty

If this is the first time you filed late, you may qualify for the First Time Abatement (FTA) program. You may also qualify for penalty abatement if you have reasonable factors that delayed you from filing returns.


The IRS allows some reasons and judges each situation on a case by case basis. Below are some valid excuses:

  • The return had been mailed, but the post office returned it because the postage was short
  • Your records or place of business was destroyed in the event of fire, hurricane, and other disasters
  • An IRS employee provided you with incorrect details (this is rare case)
  • Death or serious/terminal illness of a family member (but for corporations, the person who was supposed to file must have the sole authority)


If are troubled with your unfiled back taxes and their corresponding penalties, you may consider getting a tax relief professional to help you comply with the IRS and apply for penalty abatement.


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