What would happen if you just ... didn't pay your taxes?

You won't go to jail. Otherwise, the reality is pretty unpleasant.
FEB 05, 2015
By  Bloomberg
People fail to file their tax returns for all sorts of reasons. A nasty divorce. A death or illness in the family. An addiction of one kind or another. Some people can't face the paperwork, or just don't want to. It's impossible to know how many tax evaders there are, but tax preparers and accountants say many have been keeping it up for years, hoping the IRS won't notice. There's a good chance, it won't—at least not for a good, long while. But the government tends to catch up with nonfilers eventually. Here's what happens when you just don't file your taxes. At first, nothing. Every time a person gets a W-2, a 1099 or other tax form, the IRS gets a copy, and its computers analyze them to see who has failed to file. If you're owed a refund (or refunds), the IRS doesn't particularly care if you don't file. After three years, though, you no longer have a right to your refund. The system does flag taxpayers when it's clear that they owe money, but even that can take the agency a few years to act on, says Jonathan Bochese of the Tax Defense Network. Tax documents triggered by a home sale, a loan or a stock transaction can pique the IRS' curiosity, too. YOU WON'T GO TO JAIL Going to prison for tax fraud, which is how the IRS classifies not filing, is very rare, according to Cindy Hockenberry of the National Association of Tax Professionals. After all, if you go to jail, you can't work, which means the IRS can't seize the money you owe from your paycheck. You do enter paperwork purgatory. When the IRS system figures out that you owe money, it automatically generates a tax return for every year you failed to file. It then sends you a bill; if you don't respond quickly, it begins the process of seizing your assets. The IRS' returns probably won't include all the deductions you're entitled to, which means that many people will need to refile all the returns they missed, digging up years-old documents to prove their case. Complex tax issues can take more than a year to resolve, says Jerry Love, an accountant and financial planner in Abilene, Tex., and this assumes that you respond quickly to all IRS requests for information. If you miss a deadline, you lose your spot in line and have to start over. YOU'LL OWE MORE If you owe the government money, you'll have to pay it, plus interest and fines. If you owe money and don't file, the IRS charges a penalty of up to 25% of what you owe, and it can charge an additional 25% for failing to pay your bill on time. A 75% penalty is reserved for egregiously fraudulent returns, IRS guidelines say. There's also interest to be paid, currently compounding at 3% per year. Eventually, the government will get paid. Once the returns are in, there are essentially three ways to get the IRS to go away: Pay your taxes immediately, pay them through an installment plan or somehow get the IRS to cut your bill. Declaring bankruptcy can get rid of some tax debts, and IRS guidelines are designed to get you to pay as much as you possibly can.

Latest News

FINRA sues ex-Arkadios, Osaic broker at center of millions of dollars of investor complaints
FINRA sues ex-Arkadios, Osaic broker at center of millions of dollars of investor complaints

James Walesa “should have been barred from the industry years ago,” one attorney said.

Gen Z, Millennials shape the new rules of financial advice but can advisors keep up?
Gen Z, Millennials shape the new rules of financial advice but can advisors keep up?

Kristy Smith from Broadridge says advisors who can't adapt risk being left behind.

Bureau of Labor Statistics dismissal presents opening for new leadership
Bureau of Labor Statistics dismissal presents opening for new leadership

Three contenders stand out to replace the departed Erika McEntarfer, according to Hal Ratner, who is the head of research for Morningstar Investment Management.

Americans share confusion, concerns ahead of Social Security's 90th anniversary
Americans share confusion, concerns ahead of Social Security's 90th anniversary

Surveys show continued misconceptions and pessimism about the program, as well as bipartisan support for reforms to sustain it into the future.

The advisor’s essential role as alternative investments go mainstream
The advisor’s essential role as alternative investments go mainstream

With doors being opened through new legislation and executive orders, guiding clients with their best interests in mind has never been more critical.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.