You may not want to file that IRS tax return, or you may not have the money to pay the tax you owe to the IRS, but the penalties for not filing an IRS tax return can be severe.

An IRS unfiled tax return is subject to a penalty of up to 25%

An IRS unfiled tax return is subject to an unpaid penalty on taxes owed of up to 25%

An IRS unfiled  tax return statute of limitation is endless.

Failure to file an IRS tax return can be considered a criminal act, with a punishment of one year in jail for each year you failed to file a return.

The IRS can file a return for you on an IRS unfiled tax return called an "SFR" (Substitute for Return). Of course, if the government is filing your return, you can bet they don't have your best interests in mind. The SFR only allows standard deductions and one personal exemption. You lose credit for spouses, children, business expenses, mortgage interest, etc. -- all those deductions which help to lower your tax base.

What do you do if your client has unfiled returns?

To begin with, if your client doesn't have his/her records, contact Practitioner Priority Service and order the Income & Wage Transcripts for those unfiled years.

If Practitioner Priority Service informs you that an "SFR", substitute for return, has been prepared by the service, ask for what years. Also, make sure to ask them where to file the actual returns once completed. The actual prepared return will take presidence over an SFR.

If your client is in business but doesn't have financial statements prepared for any given year, consider engaging your client to prepare the financial statements in order for you to prepare an adequate tax return.

It is that simple. In my own experience, my business has literally prepared thousands of unfiled returns in the past fourteen years. It is a good source of income.