Unfiled Tax Returns: The Ticking Time Bomb

I haven’t filed tax returns in several years. How big of a problem is this?

This is probably the most common issue I see across Detroit, Chicago, Cleveland, and the surrounding areas. Life gets complicated—divorce, illness, business failure, depression—and before you know it, you haven’t filed in three, five, or even ten years.

Here’s what you need to understand: unfiled tax returns are one of the most serious tax problems you can have. The IRS considers this “voluntary noncompliance,” and they take it extremely seriously. Every year you don’t file, the problem compounds.

The IRS has a six-year statute of limitations for criminal prosecution of non-filing, but there’s no statute of limitations on assessment if you never file. That means the IRS can come after you indefinitely for unfiled returns. They can also file what’s called a Substitute for Return (SFR) on your behalf—and trust me, when the IRS does your taxes for you, they’re not looking for deductions to save you money.

I recently worked with a Chicago restaurant owner who hadn’t filed in seven years. The IRS had filed SFRs for him, and their calculation showed he owed $340,000. After we filed proper returns with all legitimate business deductions, meal costs, equipment depreciation, and other expenses, his actual liability was $89,000. That’s a $251,000 difference—all because he let the IRS do his returns instead of filing properly.

The longer you wait, the worse it gets. Interest and penalties compound daily. The IRS becomes less willing to negotiate. And the stress? It’s corrosive. I’ve had clients tell me they couldn’t sleep for years because of unfiled returns hanging over their heads.

Step One: Determine Which Years Need Filing

The IRS typically requires you to file the last six years of returns to be considered compliant. However, if you’re self-employed or have complex tax situations, we might need to go back further. I’ll order your IRS transcripts to see exactly what the IRS has on record for you.

Step Two: Gather Documentation

This is often the hardest part for people. If you haven’t filed in years, you probably don’t have organized records. But here’s the good news: we can reconstruct your tax history. I can request wage and income transcripts from the IRS that show what income was reported to them. For business owners, we’ll work with bank statements, receipts, and whatever documentation you have.

I worked with a Detroit contractor who kept all his receipts in a literal shoebox for five years. We spent two days sorting through everything, reconstructing his expenses, and building legitimate tax returns. It’s tedious work, but it’s worth it.

Step Three: Prepare and File Returns Strategically

We prepare all the returns carefully, ensuring we capture every deduction and credit you’re entitled to. Then we file them in the right order. Sometimes we file all at once; other times we file strategically based on what’s most advantageous for your situation.

Step Four: Address the Tax Debt

Once returns are filed, we know exactly what you owe. Then we can explore options like installment agreements, offers in compromise, or currently not collectible status.

The relief people feel once their returns are filed is profound. One Cleveland nurse I worked with literally cried when we filed her last return. She told me she felt like she’d been carrying a hundred-pound weight for five years, and it was finally gone.