Many people use the terms “unfiled federal taxes” and “unpaid taxes” interchangeably, but they are two different types of tax issues. Understanding the differences can help you take the right steps forward to resolve your situation and prevent additional problems with the IRS.
Unfiled federal taxes occur when you fail to submit a required tax return. Even if you cannot afford to pay what you owe, you still need to file your return by the deadline. When your return goes unfiled, the IRS may assess failure-to-file penalties. In some cases, they may create a Substitute for Return using information reported by your employer and financial institutions. These IRS-prepared returns usually result in a higher tax bill because they do not include all deductions and credits you could qualify for.
In comparison, unpaid federal taxes happen when you file your tax return but do not pay the full amount that you owe. While filing on time can help you avoid failure-to-file penalties, the IRS may still apply penalties along with interest until you take care of the balance you owe.
In general, the IRS treats unfiled taxes as the more urgent issue. Before discussing payment options, the agency usually requires that you file all the returns required of you. After that, you can look into other solutions, such as installment agreements, penalty relief, or other tax resolution programs.
If you have unfiled federal taxes and are unsure of how to handle the situation, turn to me, Denson Pepper CPA, for help.