Most unfiled years start with something reasonable: a bookkeeper left, a hard year happened, a preparer stopped replying. The first missed year makes the second easier to miss, because filing it now means admitting the first. By year three the owner avoids the subject entirely. We see this weekly and nobody in it is a criminal.
Step 1: find out exactly what is open
The IRS can tell you. An account transcript for the entity and for the owner shows which years have returns on file, what has been assessed, and what notices have been issued. It is free, takes a few days, and removes the guessing. Many owners discover that one of the "missing" years was actually filed, or that the IRS has filed a substitute return on their behalf with no deductions, which is worse than nothing and must be replaced.
Step 2: rebuild the books, oldest year first
A return is only as good as the numbers under it. For each open year: bank and card statements, payment platform reports, payroll records if any, and the prior filed return for opening balances. Reconcile each year in order; the closing balances of one are the opening balances of the next. This is where most of the work is and where a fixed-price catch-up project belongs. Estimating from memory produces returns that fail on the first question.
Step 3: file every year, all at once
File the oldest year first and the rest in sequence, each with the correct form for the entity in that year (a single-member LLC that became a partnership in year two files a Schedule C period and then a 1065). Attach a reasonable-cause statement to each. Pay whatever tax can be paid with the returns, because the failure-to-pay penalty stops on what is paid and abatement requests go better on a paid balance.
Step 4: request relief
First-time abatement for the first open year if the prior three were clean. Reasonable cause for the rest, written specifically: what happened, when, what was done to fix it. For foreign-owned LLCs, the Form 5472 statement is separate and follows its own pattern. For partnerships with ten or fewer individual partners, Revenue Procedure 84-35.
Step 5: deal with the balance
If tax is owed and cannot be paid, an instalment agreement is available online for balances under $50,000 and by application above it. Interest continues; collection does not. The important thing is that the returns are filed before the agreement is requested, because the IRS will not negotiate an unfiled year.
What it costs
Penalties depend on the entity: per-owner per-month for partnerships and S-corps, a percentage of unpaid tax for corporations and Schedule C filers, $25,000 per year for a missed Form 5472. Preparation from $99 per year, catch-up bookkeeping as a fixed project. The number that matters most is time: penalties stop on the day of filing, and every month before that costs more.
The check: request the IRS account transcript this week. It is the one step that costs nothing and changes everything after it.