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This is what happens when you just don’t file your taxes

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(Bloomberg Business) — 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 that there are many who 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 usually catches up with non-filers 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 also gets a copy, and its computers analyze them to see who’s 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, 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’s curiosity, too.

You probably won’t go to jail

Going to prison for tax fraud, which is how the IRS classifies not-filing, is very rare, says 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 systems figures out you owed 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. But the IRS’s returns probably won’t include all the deductions you’re entitled to, which means that many people need to re-file all their missing returns, 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, Texas, and that’s assuming you respond quickly to all IRS requests for more information. If you miss a deadline, you lose your spot in line and need to start all over.

You’ll owe so much more than you thought 

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 percent of what you owe, and can charge another 25 percent for failing to pay your bill on time. A 75 percent penalty is reserved for egregiously fraudulent returns, IRS guidelines say. There’s also interest, currently compounding at 3 percent 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, but not all, tax debts, and IRS guidelines are designed to get you to pay as much as you possibly can. 

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