Penalties for Failure to Pay Federal Taxes

by Jeffrey Kosola on June 22, 2010

Taxes are something I usually leave to the professionals, at least for now.  Yes I enjoy learning how to reduce the amount of taxes I pay.  I really enjoyed figuring out how to keep more money in my paycheck by adjusting my tax withholdings.  As a debt blogger, I began to wonder what would happen if you failed to pay taxes.  Thanks to the crew at TaxDebtHelp we have an answer.

It is a requirement of the law to pay taxes. Every year in America April 15th is the cutoff date for filing taxes, unless you have requested an extension.  The IRS has a code which determines that by law a tax can be imposed on the taxable income of individuals, estates and trusts. Failure to follow the law will result in one of a variety of consequences ranging from a fine to imprisonment.  The failure to pay federal taxes may also result in a combination of penalties depending on the circumstances.

The federal law imposes penalties on those that fail to pay taxes altogether, fail to file tax returns or file an incorrect tax return.  There are laws that outline the penalties associated with failure to pay federal taxes.  The penalties associated with failure to pay federal taxes range from criminal prosecution to civil fraud; depending on the severity and the intent of the offense.

The failure to pay taxes and penalties associated with each are categorized into a few common circumstances listed below:

  • The failure to pay taxes altogether may result in a penalty of up to ½ of 1% of your unpaid taxes owed each month. The penalty will add up for the time frame that your taxes go unpaid.  The amount cannot be more that 25% of the unpaid tax balance.
  • Substitute for Return is the law that allows the IRS to file a tax return on your behalf if you fail to voluntary file.  If this occurs you will forfeit any credits and deductions that you would normally be afforded if you filed your own return. Additionally, the IRS may assess the amount you owe and add penalties and interest on the unpaid amount that resulted from your failure to file.
  • Filing a frivolous return means that your tax return does not include enough information to determine the accurate amount of taxes that you owe due to an intentional interference with the tax law.  This is a minor penalty that is usually $500, but it may be in addition to other tax penalties.
  • A loss of refund occurs when an individual who fails to file taxes more than three years after the return is due. Those who file three years late automatically forfeit the refund that was owed for those years they failed to file. The loss of refund may also be combined with penalties associated with late filing or the failure to file.
  • Imprisonment is a severe consequence of failing to file and pay federal taxes. Those individuals that avoid payment of taxes and are eventually tracked by the IRS can face severe penalties including imprisonment.

The IRS is obligated to notify the taxpayer in writing of their obligation to pay taxes if they fail to do so according to the tax laws and filing deadlines. The taxpayer who fails to respond to the correspondence will be subject to one or more of the following penalties. If an individual can prove that there is a good and justifiable reason why your taxes were not paid as outlined in the tax law the penalty may be waived.

The bottom line is: You need to file your taxes regardless of whether or not you can pay for them. The IRS is willing to give you options if you need to make payment arrangements so be sure to communicate with the local IRS office and focus on repaying your debt to the government as fast as possible to avoid as any penalties and fees as you can.

This article is provided for Taxdebthelp.com, a site designed to help with tax debt.  If you are in need of IRS tax debt settlement this site can help you figure out what your options are.

{ 11 comments… read them below or add one }

Cathie June 22, 2010 at 10:16 am

Wow. I did not know that you forfeited your refund after 3 years. Thanks for the info.

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Jeffrey Kosola June 24, 2010 at 1:25 pm

Cathie, I thought the same thing :-)

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Que June 22, 2010 at 8:23 pm

Can I pick and choose my punishment? I’m thinking I don’t like the whole prison thing. With murderers and other hardened criminals there I would hate to say I was in for tax evasion. I guess I’m just going to pay my taxes. I have been in an IRS battle for 4 years now on taxes that I don’t owe and I find it best to pay anyway (since I don’t like prison) and get it corrected on the back end. That will be a nice return if I EVER see it!

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Jeffrey Kosola June 24, 2010 at 1:27 pm

Hey Que,

I really wouldn’t like to visit jail either. I agree with you, I would rather get it fixed on the back end.

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Nunzio Bruno June 23, 2010 at 11:02 pm

Great post! Someone actually came to me recently needing advice over at Financially Digital on the imprisonment due to not paying taxes. I couldn’t believe the letter they showed me. It ended up being some kind of reporting error and no one went to jail but the IRS is no joke and it was pretty interesting and scary to see the process up close and personal.

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Jeffrey Kosola June 24, 2010 at 1:29 pm

Nunzio,

I sure wouldn’t want to receive anything from the IRS except for my tax refund, or a receipt that I’ve paid my taxes. Did you have to help the person with the IRS, or were they able to take care of it themselves?

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Tom July 5, 2011 at 11:18 am

Sure wouldn’t want to receive anything from the IRS except for my tax refund.

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truleebe July 10, 2011 at 1:45 pm

What happens if you just filed your 2007 tax return and you are due a refund? I understand I forfeit this refund, but will I still have to pay a “failure to file” penalty?

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Failure to file penalty May 14, 2012 at 11:54 am

With regards to the question above, there should be no failure to file penalty on 1040 – Income tax return that was filed late, but with a refund due. However, it isunfortunately too late to get a refund for 2007.

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John Salan December 17, 2012 at 1:25 pm

Just a heads up the comment above me is comment spam and you should remove it.

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