Back Taxes & Unfiled Returns

In short, yes. Having tax debt, also called back taxes, won’t keep you from qualifying for a mortgage.

The amount that the IRS says I owe on my taxes is wrong, what should I do?

If you owe back taxes and can’t pay, you’re not alone. In 2019, 16.8 million individual taxpayers owed the IRS. Each year, millions of taxpayers must get an installment agreement, extension to pay, or another, more complicated, IRS collection alternative to full payment.

The good news? Tax debt relief is possible. The not-so-good news? Not everyone qualifies for a settlement, but there are several options to explore and consider. The IRS offers a variety of tax debt relief programs and a lot of online tools and forms to make it easier to apply for them. If you are overwhelmed by the complexity of your situation, consult a professional. Either way, it’s best to deal with tax debt as soon as possible.

What are back taxes?

You might have heard about how it is possible to settle your IRS tax debt for less than the amount you owe. While the IRS won’t let you off easy, there are some circumstances where you might be able to qualify for an offer in compromise (OIC).

The IRS can issue levies on taxpayers who have been given the chance to pay their unpaid balances and have not paid or set up a collection alternative. Most IRS levies are issued by an automated collection system (systemic levies).

Not paying your taxes can have harsh consequences. This makes it important for you to understand the consequences and how to resolve these issues. One major consequence is passport restrictions. Let's take a look at how that happens, and what that means for you.

When taxpayers can’t pay their tax bill with their assets and monthly income, they may qualify for an offer in compromise (OIC). The OIC for "doubt as to collectibility" status is for people who probably won’t be able to pay the IRS before their collection statute expires (generally 10 years from the date the IRS assesses the tax). The OIC allows them to settle their tax bill for less than the full amount.

The IRS offer in compromise (OIC) allows qualified taxpayers to settle their tax bill for less than they owe.

Joint tax filers are both liable for taxes owed on their filed tax returns. If there is an audit or an unpaid balance, both taxpayers are responsible for paying the balance owed.

Many people who owe back taxes to the IRS still hear about the IRS Fresh Start Initiative on the airwaves. Many ads tout Fresh Start as an opportunity to settle back taxes with the IRS.

Stressed about owing the IRS back taxes? Learn about your options, including payment plans, hardship agreements, and more, as well as the cost of doing nothing.

When you need to address back tax returns, it’s important to understand how the IRS works. Here are 10 key points that will help you as you resolve your past-due returns and get back in good standing with the IRS. 

Per IRS estimates, 12-15 million taxpayers do not file a required return. Add to that the estimated 400,000 taxpayers per year who still must file returns to continue receiving advance payments of the premium tax credit to pay for their health insurance. In all, there are likely more than 15 million people who must file back tax returns.

When taxpayers don’t file required tax returns, the IRS can pursue those returns (called enforcement) through its IRS Collection and Examination (audit) functions. The IRS Collection function pursues most unfiled returns, starting by identifying non-filers using third-party information returns (such as Forms W-2, 1099, etc.). Most of the time, taxpayers will receive several notices asking them to voluntarily file their back tax returns.

In general, the IRS requires taxpayers with delinquent returns to file the past six years of tax returns to be in federal tax compliance. In practice, though, the IRS inconsistently interprets the six-year return filing requirement. If the deadline to file the current year hasn’t passed (including filing extensions), the IRS often requests the current-year return plus the previous six years from taxpayers with delinquent returns.  

If you don’t file a required tax return by the deadline, it’s called a back tax return, an unfiled return, or past-due return. You can face consequences with the IRS if you have back tax returns.

Taxpayers who file a late tax return and have a balance due can face significant monetary penalties. Taxpayers who willfully fail to file can also face criminal sanctions.

What happens if you haven't filed your taxes at all? Most people file their taxes before the May 17 deadline: it's estimated that 90% of all tax returns the IRS processes in a given year are submitted before the deadline.

There are lots of important deadlines at the IRS, some of which limit the amount of time taxpayers and the IRS have to take certain actions. Here are three deadlines that every taxpayer should know and how they affect back tax returns.