Many people who owe the IRS also have a year or two (or more) they never filed. It usually starts the same way: you could not pay, so you did not file, and then the next year felt even harder. If that is you, you are far from alone, and it is fixable.
But here is the rule you need to know before you call the IRS: you generally cannot get a payment plan until your returns are filed.
Why filing comes first
The Internal Revenue Manual requires that you have filed all required returns, and that you be current on estimated tax payments, withholding or federal tax deposits, before the IRS approves an installment agreement (IRM 5.14.1.4.2; IRM 5.14.5.1.1).
There is a practical reason too. A payment plan has to cover everything you owe. Until the missing returns are filed, neither you nor the IRS knows the full balance. A plan built on part of the picture would fall apart as soon as the missing years were assessed.
How many years does the IRS usually ask for?
The IRS's internal guidance on delinquent returns says enforcement of filing requirements will normally be pursued for a six year period (IRM 5.1.11.7.1). That guidance rests on IRS Policy Statement 5-133, Delinquent returns, enforcement of filing requirements, which the IRM says is located in IRM 1.2.1.6.18.
A few points from that same section of the IRM are worth knowing:
- It is a general rule, not a hard limit. The IRM tells employees to consider the facts of each case, including how flagrant the non-filing is, your history of noncompliance, and the effect on future voluntary compliance.
- The IRS can ask for more or fewer years. If an employee decides to enforce more or less than six years of filing requirements, managerial approval is required (IRM 5.1.11.7.1).
- The IRS will still ask about all unfiled returns. The IRM tells employees to always request all (non-fraudulent) unfiled returns, and says you may file for all open periods regardless of how old the delinquency is (IRM 5.1.11.7.1).
In many cases, that means the IRS focuses on the most recent six years. But do not assume older years do not matter. Talk with a professional about your specific situation before deciding what to file.
What happens if you do not file
Ignoring missing returns does not make them go away. Internal Revenue Code section 6020(b) allows the IRS to make a return for you when you fail to file. The IRS prepares that return from its own knowledge and the information it can obtain, not from your records. The tax it assesses can then be collected like any other balance.
Not filing is also expensive. Under Internal Revenue Code section 6651(a)(1), the failure-to-file penalty is 5% of the unpaid tax per month, up to 25%. That is ten times the standard failure-to-pay rate of 0.5% per month under section 6651(a)(2).
Filing on time can lower your penalty later
For future years, filing on time matters for another reason. Under Internal Revenue Code section 6651(h), an individual who filed on time (including extensions) pays a failure-to-pay penalty of 0.25% per month instead of 0.5% for months an installment agreement is in effect. The IRM says this applies only if no CP504, LT11 or Letter 1058 was issued, and it reverts if the plan terminates (IRM 5.14.1.2). See what a payment plan costs for the details.
The order to do things in
- Figure out which years are missing. Gather any IRS notices you have and your income records (W-2s, 1099s and similar documents) for the missing years.
- Prepare and file the missing returns. File them even if you cannot pay the balance on them.
- Get current for this year. Adjust your withholding or start making estimated tax payments so you do not create a new balance. If you have a business with employees, make your federal tax deposits.
- Wait for the new balances to be assessed, or estimate them. Your plan needs to cover the total.
- Choose the right plan. See which payment plan you qualify for and use the payment plan calculator.
- Apply. See how to apply for a payment plan.
Levy protection starts when you ask
Under Internal Revenue Code section 6331(k)(2), the IRS generally cannot levy while an installment agreement request is pending, for 30 days after a rejection (and during an appeal filed within that time), and while the agreement is in effect. That is a strong reason to get your returns filed quickly, so you can make a request the IRS can process. If the IRS is already taking action, read owe the IRS but cannot pay.
What if you already have a plan and miss a filing?
The rules after approval are a little different. The IRM says an open investigation into an unfiled return does not, by itself, put an existing installment agreement into default (IRM 5.14.11.3), and that the IRS cannot terminate an agreement for unfiled returns or estimated tax alone. But a new balance that goes unpaid does default the agreement (IRM 5.19.1.6.4.17; IRM 5.19.1.6.4.19). Section 6159(b) also lets the IRS terminate an agreement if you fail to pay another tax liability when due, after at least 30 days' notice.
Reinstating a defaulted plan has a filing condition too. The IRM says the IRS will not reinstate an agreement until all returns for the prior six years are filed (IRM 5.19.1.6.4.19). See what happens after a missed payment.
Common questions people are afraid to ask
- Should I file if I cannot pay? Yes. Filing stops the 5% per month failure-to-file penalty from growing on that year and makes a payment plan possible.
- Should I file the oldest year first? Order matters less than getting the required years done. Many people work from the most recent year back.
- What if I cannot afford any plan after filing? Look at currently not collectible status or an offer in compromise.
Getting help
Unfiled returns and unpaid balances are a common combination, and the decisions about which years to file, and in what order, can affect the outcome. If you have several missing years, a business, or income the IRS may not know about, talk to a tax attorney before you file. You can reach our office through GetIRSHelp.com or at (813) 229-7100.
Frequently asked questions
Can I get an IRS payment plan if I have unfiled returns?
Generally no. The IRS requires that all required returns be filed, and that you be current on estimated payments, withholding or deposits, before it approves an installment agreement (IRM 5.14.1.4.2; IRM 5.14.5.1.1).
How many years of unfiled returns does the IRS usually require?
IRS guidance says enforcement of filing requirements will normally be pursued for six years (IRM 5.1.11.7.1, based on Policy Statement 5-133). Enforcing more or fewer years requires managerial approval, and the IRS will still ask about all unfiled returns.
What happens if I never file the missing returns?
Internal Revenue Code section 6020(b) allows the IRS to make a return for you from its own information. The resulting tax can be collected like any other balance, and the failure-to-file penalty of 5% per month, up to 25%, applies under section 6651(a)(1).
Will an unfiled return default my existing payment plan?
An open unfiled return investigation alone does not cause default (IRM 5.14.11.3). But an unpaid new balance does default the agreement (IRM 5.19.1.6.4.17; IRM 5.19.1.6.4.19).
Can a defaulted plan be reinstated if I have unfiled returns?
The IRM says the IRS will not reinstate an agreement until all returns for the prior six years are filed (IRM 5.19.1.6.4.19).
This guide is general information, not legal advice. Tax law changes and every case turns on its own facts.