Can the IRS Audit You for Not Filing a Tax Return in Several Years?
Yes, the IRS can and will audit you, even if you have not filed a tax return in several years. They typically begin the process by sending a letter stating their belief that a return is necessary, sometimes accompanied by indicative information about your income. According to the IRS, they can audit any US citizen at any time for any reason, whether you filed, didn't file, or simply didnt file on time.
The Audit Process
The initial communication from the IRS is a letter. This is a common approach in all interactions with the IRS, whether you are due refunds or owe taxes. The letter will outline the reasons for the audit and may provide some clues about your income or financial activities. In many cases, the IRS will simply accept the returns, accept the payments, and impose any late filing penalties or interest that may apply. However, if you have income to report or have a significant amount of income that requires a return, the IRS will likely initiate an audit.
Why the IRS Might Audit You
The IRS may audit you if you have had income but have failed to file a return for several years. This can be particularly true if you had earnings but were not working during the period in question. For instance, a situation where you did not file due to unemployment or a similar circumstance. If you reinstate your tax filing, as in the case of opening a new business, you may avoid an audit as long as you provide accurate tax information.
The IRS can even initiate an audit if you have never filed your taxes. If you filed for several years and then stopped, it can raise questions about why you ceased filing. However, the IRS may simply accept your returns and impose late penalties if you are due refunds, or they may choose not to initiate an audit in such cases.
Special Considerations for Non-Filers
There is a little-known provision of the Treasury Code known as the RSED (Refund Statute Expiration Date). If you dont claim your refund within three years, you are no longer eligible to receive it. However, if you owe and do not file, there is no expiration date for the liable return.
Some individuals might face audits simply because the IRS believes they are undervaluing their income. For example, a homesteader reported in Mother Earth News who has been audited annually due to the IRS's disbelief that he lives on an income of just $3,000 per year.
It is also important to note that if you are not liable for the income tax, you will not be subject to an audit for that reason. Most people in the United States are not liable for corporate income taxes on corporate profits they do not own. Since you are not a corporation, you are not obligated to file a tax return that you do not owe. Misinformation about the income tax and the obligations of non-corporate individuals can lead to troubles, but not all trouble is justified by law.
For further reading, consider Dave Champion's book Income Tax: Shattering the Myths, which delves into the legal and social applications of income tax.