I haven't filed taxes in years: how to get current with the IRS without making it worse

Short answer

File the missing returns as soon as you can, starting with the most recent ones. In practice, the IRS usually asks for the last six years. If you are owed a refund, you only have three years from the due date to claim it. If you owe, filing stops the largest penalty from growing, and you can ask for a payment plan. Waiting only lets the IRS prepare a return for you, without your deductions.

Why waiting costs more

• Late-filing penalty: generally 5% of the unpaid tax per month, up to 25%. It is ten times higher than the late-payment penalty.
• Interest runs on the tax and on many penalties until you pay.
• Lost refunds: to claim a refund of withholding or estimated payments, you must file within three years of the due date. After that, the money stays with the IRS.
• Social Security: if you are self-employed and do not file, your earnings are not credited for retirement or disability benefits.
• Loans: banks and mortgage lenders ask for filed returns.

The substitute for return

If you do not file, the IRS can prepare a substitute for return using the W-2s and 1099s it received. That return usually does not include your expenses, dependents or credits, so the tax is often higher than the real one. Before assessing it, the IRS sends a notice and gives you 90 days to file your own return or go to Tax Court. Even after that, filing your own correct return is generally in your favor.

How many years to file

The IRS internal policy normally limits the enforcement of unfiled returns to six years, although it can ask for more in some cases. That is why most people get current by filing the last six years. Your situation, the notices you have received and whether you have refunds or balances decide the right plan.

Step by step

1. Get your income records. Ask the IRS for your wage and income transcripts for each year. They show the W-2s, 1099s and other forms reported under your number.
2. Rebuild your expenses if you had a business: bank statements, invoices and receipts.
3. Prepare and file each year on that year's forms. If you received a notice, send the return to the address on the notice.
4. Pay what you can and ask for a short-term plan or an installment agreement for the rest; see how an IRS payment plan works.
5. Ask for penalty relief if you qualify; see how to ask the IRS to remove a penalty.
6. Stay current: file and pay the following years on time, or the plan can be cancelled.

When you need representation

If you already have IRS letters, a substitute return, a levy notice or several years with a business, it is better to have an Enrolled Agent talk to the IRS. Your EA can request the transcripts, ask for time to file, negotiate the payment and present the returns in an order that protects you.

How we can help

We prepare the missing years, deal with the IRS for you and leave you with a plan you can keep. See our IRS representation service.