Federal Tax Compliance Requirements
What does the IRS require?
The IRS enforces federal tax law, which requires taxpayers to file returns, report income, and pay taxes owed. But compliance is not just about filing a return—it's about filing the correct return on time and maintaining accurate records. The IRS's actual requirements are procedurally specific, even though they're often misunderstood or overstated.
Federal tax compliance requires three core actions: filing required returns, reporting income accurately, and paying taxes owed. These obligations vary based on income level, filing status, type of income, and business structure. Understanding what the IRS actually requires is essential for determining whether you are compliant.
How compliance is determined
Compliance is determined by IRS records, not by what you believe or what was claimed to have been done.
The IRS evaluates compliance based on what exists in its systems:
- Account Transcripts — Show what returns the IRS received, filing dates, payments made, and balances owed
- Record of Account (Form 4506-C) — Displays complete account history including notices sent, enforcement actions, and current status
- Wage & Income Transcripts — Show income reported to the IRS by third parties (employers, investment companies, etc.)
- Tax Return Transcripts — Display line-by-line information from your filed returns as recorded by IRS
The IRS does not determine compliance based on what a taxpayer or professional claims was submitted. If it's not in IRS records, the IRS does not consider it filed or paid. This is the critical distinction: compliance is what the IRS has documented, not what you have done.
Internal CTA
This guide explains how the IRS determines compliance. A compliance review applies these rules to your actual IRS records and shows you exactly what the IRS has documented about your account.
IRS records determine compliance
Compliance is objective and records-based. The IRS considers you compliant when:
- All required returns for the applicable years have been filed with the IRS
- All taxes shown as owed in IRS records have been paid, OR you are under a valid, current IRS payment arrangement
- No unresolved IRS enforcement actions exist on your account
You are not compliant if:
- IRS records show unfiled returns for any required year
- IRS records show an unpaid tax balance
- You have received IRS notices of non-compliance, assessment, or enforcement action that has not been resolved
- You are behind on payments under a payment plan or other IRS arrangement
- IRS records are incomplete or contradictory (e.g., showing income reported but no return filed)
Individual compliance vs business compliance
Business compliance is separate from individual compliance. You may be compliant as an individual but noncompliant through a business entity—or vice versa. Each filing entity is evaluated independently.
Individual compliance requires:
- Form 1040 (federal income tax return) filed for all required years
- All applicable schedules (Schedule C for self-employment, Schedule A for itemized deductions, etc.)
- Form 1040-ES paid (estimated quarterly tax) if required
- All income reported (W-2, 1099-NEC, 1099-MISC, capital gains, etc.)
- All taxes shown as owed paid or under valid arrangement
Business compliance requires additional filings:
- Sole proprietors: Schedule C filed with Form 1040; Form 1040-ES estimated taxes if self-employment income exceeds $400
- Partnerships: Form 1065 (partnership return) filed; K-1s provided to partners; each partner reports income on individual return
- S Corporations: Form 1120-S filed; K-1s issued to shareholders; corporate payroll taxes (Form 941, 940) filed if employees
- C Corporations: Form 1120 filed; corporate income tax paid; payroll taxes (Form 941, 940) and W-2/W-3 filings if employees
- Employers (any entity with employees): Form 941 (quarterly) filed; Form 940 (annual) filed; Form W-2/W-3 filed; payroll taxes deposited on schedule
Example: A sole proprietor may have filed personal 1040s for all years and be fully paid, but if the business failed to file or pay payroll taxes for employees, the business (and potentially the individual as responsible party) is noncompliant.
Filing requirements
Not everyone must file a tax return. Filing requirements are determined by gross income, filing status, age, and whether you have self-employment income. If you fall below the threshold for your filing status, you may not be required to file. However, filing may still benefit you—particularly if you had income tax withheld and are entitled to a refund, or if you qualify for tax credits.
Note: IRS income thresholds for filing requirements are adjusted annually for inflation. The amounts shown below are examples from recent tax years. Always verify current requirements for the year in question.
Who must file
Single filers (under 65): Generally required to file if gross income exceeds the standard deduction for that year.
Married filing jointly (both under 65): Generally required to file if combined gross income exceeds the standard deduction for that year.
Self-employed individuals: Required to file and pay self-employment tax if net self-employment income is $400 or more, regardless of other income level.
Dependent status: Filing requirements are different for individuals claimed as dependents. Generally, a dependent must file if they had earned income above the threshold for their category or unearned income above the threshold for dependents, regardless of whether a parent claims them as a dependent.
Why this matters for compliance: If filing was required for a year and no return was filed, you are not compliant for that year. The threshold amount does not matter—the question is whether you were required to file. If IRS records show no return filed for a year you were required to file, compliance requires filing that return (or establishing through documentation that no filing obligation existed).
When returns must be filed
Federal income tax returns for a calendar year are due by April 15 of the following year. If April 15 falls on a weekend or holiday, the deadline moves to the next business day. The IRS does not accept 'I didn't know' as a reason for filing late.
Filing extensions are available. Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) grants an automatic six-month extension. However, the extension is only for filing—not for paying taxes owed. Taxes are still due by April 15, even if you file an extension. Interest and penalties accrue on unpaid taxes from the original due date.
For compliance purposes: If a return was not filed by the due date (or extended due date), and the IRS has not received that return, you are noncompliant for that year. Filing an extension shows intent to file, but filing a return after the extension deadline may trigger penalties.
What 'current' means
Being 'current' on your taxes does not simply mean having filed a return. It means you have filed all required returns for all years the statute of limitations is open (typically the last six years), and you have paid all taxes owed or are on a valid payment plan with the IRS.
The IRS considers you not current if you have unfiled returns, unpaid taxes, or unresolved tax debt. If you are missing returns from prior years, you must file those returns (or determine you had no filing obligation) before you can be considered compliant.
A payment plan does not mean you're current if you're behind on payments. You must stay current on a payment agreement. Missing a payment on an active agreement can trigger collection action. 'Current' means all filing and payment obligations are met—no outstanding balance, no unfiled returns."
Estimated tax payments
If you have income that is not subject to withholding (self-employment income, rental income, investment income, or other sources), you may be required to pay estimated quarterly taxes. Estimated taxes are due on specific dates: April 15, June 15, September 15, and January 15 of the following year.
Failure to pay estimated taxes can result in penalties and interest. If your estimated tax payments are too low, you may face an underpayment penalty even if you ultimately owe nothing or receive a refund when you file your return.
The IRS provides Form 1040-ES to help calculate estimated quarterly payments. If you're unsure whether you need to make estimated payments, a tax professional can help you determine your obligation.
Examples of compliance and non-compliance
Understanding compliance is easier with real-world examples. These are factual applications of IRS standards—not advice, not recommendations, just how compliance is evaluated.
Example 1: Unfiled years
Account status:
IRS Account Transcript shows no filed returns for 2020–2022. The taxpayer had W-2 income each year and completed Form 1040s, but never sent them to the IRS.
Compliance determination:
Not compliant. Completion of a return is not filing. The IRS does not have any of those returns in its records. Under IRS standards, compliance requires filing all required returns. To achieve compliance, those three years must be filed with the IRS. The fact that the returns were completed but not sent does not satisfy the filing requirement.
Example 2: Payment received vs. payment recorded
Account status:
Taxpayer mailed a check to the IRS for $5,000 owed. The check was cashed by the IRS. But IRS Account Transcript still shows the full $5,000 balance unpaid, with no record of the payment.
Compliance determination:
Not compliant according to IRS records. The fact that a payment was sent does not matter. What matters is what the IRS has recorded. If the payment was not properly applied to the account, the taxpayer remains noncompliant from the IRS perspective. To achieve compliance, the payment must be located and properly credited (through correspondence with the IRS), or a new payment must be submitted with proper tax identification and year.
Example 3: Professional claims vs. IRS records
Account status:
A taxpayer hired a tax relief company that promised to file unfiled returns for 2019–2021. The company took a $3,000 fee. The taxpayer believed the returns were filed. IRS Account Transcript shows no returns filed for those years.
Compliance determination:
Not compliant. The company's claims or the taxpayer's belief do not affect compliance. The IRS determines compliance based on what exists in IRS records. If the returns were not filed with the IRS, the taxpayer remains noncompliant, regardless of what the company claims or what was paid. Compliance requires those returns to actually be filed with the IRS.
Example 4: Payment plan doesn't ensure compliance
Account status:
Taxpayer has an active Installment Agreement with the IRS paying $500/month for past-due taxes. Two months ago, the taxpayer missed a payment. The missed payment was not made up or addressed with the IRS.
Compliance determination:
Not compliant. An Installment Agreement requires staying current on payments. A missed payment means the agreement is in default. The taxpayer is no longer current on their tax obligations. To regain compliance, the missed payment must be made and the agreement brought current.
Key insight from these examples:
Compliance is not determined by intentions, claims, payments sent, companies hired, or documents prepared. Compliance is determined by what the IRS has recorded in its systems. Filing requirements are met only when the IRS has received and processed a return. Payment obligations are met only when the IRS records show payment received and applied. Arrangements are valid only when they are current and active in IRS records.
Record-keeping requirements
The IRS requires you to keep records to support the information on your tax return. This includes receipts, invoices, bank statements, and documentation for deductions claimed. Records must generally be retained for at least three years from the date you file your return, but longer periods apply in certain situations.
Records you must keep:
- Income documentation — W-2s, 1099s, bank statements, invoices
- Deduction receipts — Invoices, receipts, statements for claimed expenses
- Business records — Ledgers, journals, profit-and-loss statements
- Charitable contributions — Receipts from charities, acknowledgment letters
- Medical expenses — Receipts, cancelled checks, insurance statements
- Mortgage and property taxes — 1098 forms, property tax statements
- Asset purchases — Receipts for major purchases, renovation records
Records can be kept in physical or electronic form. Digital records are acceptable as long as they are clear and can be produced on demand.
Filing requirements for businesses
Businesses have additional compliance requirements beyond individual tax filing. The requirements vary based on business structure: sole proprietorship, partnership, S corporation, or C corporation.
Sole proprietors and partnerships must report business income on their individual tax returns (Schedule C for sole proprietors, Schedule K-1 for partners). They must also file Form 1040-ES if estimated quarterly payments are required.
Corporations file separate corporate returns: Form 1120 for C corporations, Form 1120-S for S corporations. Corporate returns must be filed by specific deadlines (usually March 15 for calendar-year corporations, unless an extension is filed).
Employers must withhold federal income tax and payroll taxes from employee wages, deposit those taxes on schedule, and file employment tax returns (Form 941 quarterly, Form 940 annually for unemployment tax). Failure to comply with payroll tax obligations results in significant penalties.
Frequently Asked Questions
Verify Your Compliance Status
This guide explains how the IRS determines compliance. A compliance review applies these rules to your actual IRS records and shows you exactly what the IRS requires.
Verify Your Compliance Status