Late Tax Returns [updated for 2021]

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Late tax returns
Posted by: Gary Massey Comments: 0

Late tax returns? Maybe you are due a refund? Atlanta taxpayers, if you are behind in your tax filings by months or even years, this article is for you!

We meet with new clients of our Atlanta certified public accounting firm who are due a tax refund from a prior year for which they have not filed a tax return. These refunds are usually due to withholding taxes on wages. The only way they are able to get their refund is by filing a late return. However, the return must be filed within three years (from the date the tax was due, including extensions) to claim a tax refund. After that date, the refund is gone.

For example, to get a refund for a late 2017 tax return, the late return must be filed by April 15, 2021 (assuming an extension was not filed in 2018).

If the taxpayer paid his or her tax with an extension and did not file a 2017 return until October 15, 2018, he or she would have until October 15, 2021, to file the claim for refund because the extension period is added to the three-year time limitation.

It is important to note that some taxpayers do not file a return because they do not earn enough money to be required to file. However, the only way they can get a refund of federal taxes withheld by their employer or an Earned Income Tax Credit is to file a return.

Notice CP516


The IRS is looking for missing tax returns. The IRS uses Notice CP516 to request a missing tax return. If you receive this letter from the IRS, it means that the IRS knows about your missing return and it needs to be prepared and filed as soon as possible.

If you do not file missing returns, you are subject to a Failure to File penalty. This penalty is 5% per month, for 5 months – up to 25% of the tax due. Interest will also accrue. Even if you cannot afford to pay the tax right away, file the tax return as soon as possible to stop the penalties and interest from adding up.

There is usually no penalty for failure to file if the taxpayer is due a refund.

Substitute for Return


If you do not file a tax return and ignore Notice CP516, the IRS will prepare a return for you. This is called a Substitute for Return. The Substitute for Return is almost always bad for you because the IRS does not utilize a preferred filing status. This means the highest tax rates will apply and there will be no deductions, credits or exemptions. In other words, a Substitute for Return generally results in a large, unexpected tax liability that you do not deserve.

A Substitute for Return will also include a late filing penalty.

We generally recommend that taxpayers correct a Substitute for Return by preparing a late original return. These returns must be sent to a special “reconsideration” unit at the IRS.

Statute of Limitations


The statute of limitations does not start on an unfiled tax return. This means that the IRS can assess penalties on any unfiled year at any time, plus penalties and interest. However, as a practical matter, the IRS does not go beyond the prior six years to enforce and collect on an unfiled return.


If you have missing or late tax returns, the best thing you can do is get the returns prepared and filed as soon as possible. If you are missing Forms W-2, 1099, 1098 or other key tax documents, try to get a copy from your employer, bank or payer. If they cannot provide them to you, your CPA can usually obtain this information from the IRS under a Power of Attorney.

If you have a business or you are an independent contractor, accounting records will need to be assembled in order to prepare the return. Make sure to get copies of your business bank statements and credit card statements. Your accountant or bookkeeper will need this to reconcile the accounts to make sure that your numbers are correct.


If you would like to watch our YouTube video on this topic, click here!

For more information about the tax and accounting services we provide, visit our Home Page.

Massey and Company CPA is a boutique accounting firm located in Atlanta, GA. We provide tax preparation, tax planning, IRS representation and accounting services to individuals and small businesses throughout Georgia.

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