Didn't File? You're not alone. Many people don't file because they're scared they'll owe. Others know they owe but can't pay. But for reasons that should be obvious, this is never a good idea.What Can Happen?
Jail Time I'll be honest and admit that few people have been thrown in prison over not filing their taxes. However, if the debt situation is severe, you run a higher risk of being attacked by the law.
Failure-to-File Penalty Don't file, and you'll pay. The Failure-to-File penalty is up to 25% of the balance (5% per month). Not to mention the other penalties and interest that accrue from not paying taxes. Depending on the amount you owe, this will do substantial damage to your bank account.
Wage Garnishment If you ignore your tax obligations long enough, the IRS may begin to seize funds directly from your paycheck to pay the debt owed. Chances are you will not be left with enough income to pay your bills.
Bank Levy The IRS can empty the funds in your bank account if necessary to pay for your debt. Once your bank receives the IRS's Notice of Intent to Levy your bank account, you only have 21 days before all of your money is gone.
Tax Lien A Tax Lien is public notification of your Tax Debt to your creditors. A Tax Lien will make it impossible to buy a new car, home, or anything that involves credit.
What Should You Do? Here are some options when you can't pay.
The Installment Agreement: This is a monthly payment plan that you setup with the IRS to pay off your debt. The right installment agreement can do a lot to prove your credit worthiness. However, if you owe more than $10,000, the IRS may attempt to pressure you into an unaffordable payment plan. In this case, getting help from a tax professional is in your best interest.
The Offer in Compromise: This program sounds almost too good to be true. It is real, but it is also the most difficult to get. Only 2% of applicants for an Offer even get approved. You will have to prove that you do not now or ever will have enough money to pay your debt in full. This means that even if you sold all of your possessions, you still would not be able to pay your debt.
Currently Non Collectible: If you’re completely broke, or you’re on a fixed income that covers only the most basic living expenses you can qualify for this. Keep in mind that it is only a temporary fix. The IRS will periodically review your income. If it improves, you will be looking at a larger debt and more collection actions from the IRS
File NOW! Even if you can't afford to pay, get in compliance and file your taxes NOW. This is going to save you a lot of money in the long run. The IRS will not agree to any tax resolution until all of your required tax returns from the last 7 years are filed.
Can't Pay, Hire Help! If you have no way to pay the IRS in full, consider working with a Tax Attorney or Tax Relief professional to negotiate for a payment arrangement or even a settlement if you quality.