If you do not pay your taxes, several consequences can follow, including penalties and interest, potential liens on your property, and possible criminal investigation. Here is a detailed breakdown of the potential outcomes:
- Penalties for Failure to Pay:
- Failure to Pay Penalty (IRC 6651(a)(2)): If you fail to pay the amount shown as tax on your return by the due date, a penalty of 0.5% of the unpaid tax is added for each month or part of a month that the tax remains unpaid, up to a maximum of 25%. This penalty can increase to 1% per month if a notice of intent to levy is issued and the tax is not paid within 10 days (IRC 6651(d)).
- Failure to Pay After Notice and Demand (IRC 6651(a)(3)): If you fail to pay any amount of tax required to be shown on a return within 21 calendar days (or 10 business days if the amount is $100,000 or more) from the date of notice and demand, a penalty of 0.5% of the unpaid tax is added for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.
- Interest on Unpaid Taxes:
- Interest accrues on unpaid taxes from the due date of the return until the date of payment. The interest rate is determined quarterly and is the federal short-term rate plus 3%.
- Liens and Levies:
- Tax Lien (IRC 6321): If you neglect or refuse to pay your tax after demand, the amount due (including interest and penalties) becomes a lien in favor of the United States on all your property and rights to property.
- Levy: The IRS can seize your property to satisfy the tax debt. This includes garnishing wages, seizing bank accounts, and taking other personal property.
- Installment Agreements:
- You may be able to set up an installment agreement to pay your tax debt over time. If an installment agreement is in place, the failure to pay penalty is reduced to 0.25% per month (IRC 6651(h)).
- Criminal Investigation:
- In cases of willful failure to pay taxes, the IRS may pursue criminal charges. This can result in additional fines and imprisonment.
- Fraudulent Failure to File:
- If the failure to file is deemed fraudulent, the penalty increases to 15% per month, up to a maximum of 75% of the unpaid tax (IRC 6651(f)).
- Reasonable Cause Exception:
- Penalties for failure to file or pay may be waived if you can show that the failure was due to reasonable cause and not due to willful neglect.
In summary, failing to pay your taxes can lead to significant financial penalties, interest accrual, liens on your property, and potential criminal charges. It is crucial to address any unpaid taxes promptly and consider options such as installment agreements to mitigate these consequences.
Sources:
§ 6651. Failure to file tax return or to pay tax
§ 6321. Lien for taxes
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 2. Failure To File/Failure To Pay Penalties
IRM Part 9. Criminal Investigation. Chapter 5. Investigative Process. Section 13. Civil Considerations
IRM Part 4. Examining Process. Chapter 12. Nonfiled Returns. Section 1. Nonfiled Returns
IRM Part 8. Appeals. Chapter 17. Settlement Computations and Statutory Notices of Deficiency. Section 7. Penalties/Additions to Tax in Computations
