What's going to happen if I don't pay my taxes?

[inertia]

I owe $650 in federal income tax this year. What's gonna' happen if I just don't pay 'em? I'll only get caught if I get audited some time in the next three years, right? If I get caught it's a %10 penalty or something?

[Arnold Winkelried]

The IRS will send you a few warning letters, and eventually your salary will be garnished.

[Spiritus Mundi]

In my perfect world, you would be notified, given a chance to pay or arrange payments, then fined heavily if you failed to make said payments.

Or else you would notify the IRS in writing that you refuse to pay income tax and accept whatever punishment the law deems appropriate.

[BobT]

I thought you had to pay a penalty PLUS interest once the IRS catches up to you.

Most likely they will, but it may take some time. $650 is not a lot of money to them, but if the interest accrues long enough, the IRS will become aware of the delinquency.

You can arrange a payment schedule with the IRS when you file. However, they tell you that it's a bad deal and you're better off borrowing the money from a financial institution (I think even a cash advance on your credit card will give you better terms.)

[missbunny]

I also believe that the IRS charges you a penalty PLUS interest - and the interest can end up being higher than the amount originally owed. I think they charge interest upon interest upon penalties, etc.

[Crystalguy]

I can fix that for you. Send me half of what you owe and I will settle the debt on your behalf. Send it in cash, small, un-marked bills, non-sequential serial numbers.

[missbunny]

And you must have heard those horror stories about people whose property (worth far more than what was actually owed) was confiscated? I seem to remember reading that the IRS has in recent years tried to become the "kinder and gentler" government agency, but I think they still shoot and ask questions later. I would at least make a good-faith effort to start making payments.

[kunilou]

The IRS does not need to do a full audit to discover that you hadn't paid taxes. A few years ago I accidentally used the wrong schedule and underpaid. I received a friendly note explaining that because it looked like an honest mistake, they would only charge me for back taxes and interest, not a penalty or criminal charges, but that I'd best pay up or appeal real quick.

If you do something blatant, like send your return but don't enclose a check, they'll get back to you real quick with a pleasant but firm reminder to send the money. If you don't send a return at all, it may take a little longer, but their database will get you fairly soon.

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I understand all the words, they just don't make sense together like that.

[Sofa King]

Here's a nice one I've learned the hard way: if you file a false return, the IRS has three years to go after you, after which you are protected by the statute of limitations. However, if you do not file at all, there is no statute of limitations, and interest continues to accrue at credit-card rates.

Incidentally, the IRS has "profiles" that they like to prosecute. One of their favorites is young, single, rising professionals. The theory is (and I learned this straight from my somewhat exasperated tax attorney, who was taught this at Georgetown) that young single people have a lot to lose and large social circles who will hear about it. It's called "making an example." If you fit that profile, like I did, you can expect to face full prosecution, which can include time in federal prison. Keep some Vaseline handy.

[SingleDad]

The IRS only needs to audit you to find errors on your return. They have all your original information (W-2, W-4, 1099, etc.) They compute a "basic" tax return for everyone. If you don't file, the computer automatically bills you for their computed amount. The collection process is equally automated, and requires little manpower.

Yes, interest accrues on penalties. Yes, they will seize your house, auction it off (at fire sale prices), keep what you owe them and give you the rest. Lately, however, they seem to have eased up on preemptory seizures: If you have a legitimate dispute and are dealing with it through the correct procedure, they seem less likely to seize your assets before a judgement has been rendered.

And yes, you can be criminally prosecuted, fined and imprisoned, for filing a fradulent or "frivolous" tax return.

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Dr. Crane! Your glockenspiel has come to life!

[egkelly]

How did the late Roy Cohn (of Senator McCarthy fame) get away with stiffing the IRS? My understanding is that Cohn relished his court battles with the IRS, and that they eventually gave up trying to get him to pay. Of course, he probably did most of his dealings in cash, so most of them were untraceable-this is hardly an option for most people. But your friendly neighborhood drug dealer probably doesn't file a return! What happens to you if you report (and pay taxes due)on illegally acquired income-can the IRS use this info against you?

[phouka]

Similar questions, different circumstances . . .

About three years ago, I screwed up a tax return. I either never received or lost one of my W-2s. Well, last summer, the IRS sent me this nice little letter saying that they'd found the error and because of it, they owed me $600.

Once I started breathing again, I was actually pretty cheerful. I filled out the paperwork that said I didn't dispute the error and mailed it off.

Haven't heard a word since.

The IRS scares me. I really would like my $600, but I worry that if I bug them about it, they'll do something mean to me. (Yes, I am a big baby. Your point is?) Any advice? Info?

[lswote]

Any employers you have worked for will be sending W-2s or 1099s to the IRS for your income, so whether you file your income or not, the IRS will know what money you made from those sources.

In 1996 I did some non-employee work for a company. The company didn't send me a 1099 for the income (and I didn't realize they were required to) so I figured no big deal, because I had a copy of the invoice I had submitted to the company I could use to calculate my income, so I used that, filed my return, paid my tax and forgot about the whole thing.

The following year I got a 1099 from the company for the money I had earned in 1996 but it was reported as income for 1997. Since I had included the income and paid the tax for it with my 1996 return I figured it wasn't a problem and I just ignored it.

Then last summer (1999) I got a letter from the IRS informing them that this company had reported 1099 income for me for 1997 which I had not filed or paid tax on. They demanded the unpaid tax as well as penalty and interest which ended up being almost 85% of the amount of money earned. Plus remember, I had paid the tax, but in 1996, so the tax I paid on the money in 1996 plus what they were demanding was about 130% of the amount originally earned.

I contacted the IRS right away and filed amended returns for 1996 and 1997, taking the income off my 1996 return and putting it on my 1997, but because I had moved from the state where I had lived when I originally filed the return, it took 6 months, 3 of which I was working directly with a case worker from the IRS problem resolution office before I finally got the returns straightened out.

Every few weeks, until the problem was resolved, I got ominous, computer-generated, letters from the IRS demanding that I either immediately pay the disputed amount or arrange payments. Even the case worker couldn't get these letters to stop until the case was finally resolved.

I have to say to the IRS' credit, in the end, they accepted my original 1996 and 1997 returns and discarded my amended returns since I had reported the income and had paid the proper taxes on it and they dropped all penalties and interest, but it was very harrowing until it was resolved.

My recommendation is to file. Don't think they won't know, because they will.

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In this world, you must be oh-so smart, or oh-so pleasant. For years I was smart. I recommend pleasant.

[Jodi]

My understanding is that the IRS can charge BOTH penalties and interest on taxes owed and THEN continue to charge interest on the penalties and the tax, merrily compounding the interest right along, which is how the sums become so enormous so quickly.

I took $10,000 out of my IRA last year to put a down-payment on my house, and then took a second (part-time) job for about six months to help pay related costs. The IRA money was not subject to a penalty for early withdrawal (as I was a first time home-buyer) but was subject to income tax, and the second job (unbeknownst to me) kicked me up a bracket. Result: For last year, I owed the IRS in excess of $3,500, with another $1,000 owed for state income taxes. I went to the bank and got a loan (in the form of a second mortgage) for the taxes, thereby instantly halving my equitable interest in the house (the original 10 grand).

How happy am I about all this? Extremely un. But I would rather add five grand to my debt load (and that is, for me, a LOT of money) that mess around with the IRS.

If you cannot afford to pay all your taxes at once, the IRS will agree to put you on a payment program -- with interest, of course. That may be an option worth exploring.



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Jodi

Fiat Justitia

[The Tof]

OK.. so now that I'm reading through this,I'm thinking...

What if you file.. the IRS catches up to you.. after fines, etc, it is found that you are owed money!!! Do they pay it back to you with the interest? Or are the fines so outrageous that this is pretty much out of the question?

Screeme

[inertia]

Missbunny: First of all, where are you? Your profile leaves many things to be desired. Secondly, no I haven't heard the horror stories. Thirdly:

Does anyone know the interest rate at which the IRS charges?

Does anyone have any knowledge of actual figures of what the IRS can do to me if I don't pay my taxes and I get caught? I've seen several figures bandied about, but I'm in doubt of realistic expectations. Would I have to pay interest on the penalty also?

P.S. I love you guys (and gals).

[lswote]

Originally posted by inertia:
Does anyone have any knowledge of actual figures of what the IRS can do to me if I don't pay my taxes and I get caught? I've seen several figures bandied about, but I'm in doubt of realistic expectations. Would I have to pay interest on the penalty also?


Unless you got paid cash under the table, the IRS WILL know about your income, because your employer sends in a copy of your W-2 just like you do. It will take a couple years before the IRS actually gets in touch with you about your unreported income because the cross-checks of your reported income versus what your employers reported for you aren't done until the next income tax period to give late and amended returns time to go through the system. By that time, the tax, penalty and interest will be 200 to 300% of the original tax. And they will charge interest on everything outstanding, including penalty.


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In this world, you must be oh-so smart, or oh-so pleasant. For years I was smart. I recommend pleasant.

[VaHermit]

As already stated, by the time they catch up with you, the bill will have doubled or tripled. If you let it go until they finally notify you, I suggest making arrangments to set up payments immediately. Unlike most garnishments, the state and federal governments can and will attach your entire paycheck. This happened to a friend several years ago and I can tell you it's no fun to work for two or three weeks and recieve just the stub for your efforts.

[Danielinthewolvesden]

Ok, the basic question is, did you just file & owe? Or did you not file, because you owed?

In the 1st, collections will sent you letters, maybe call, then send a "notice of intent to levy". They then levy your bank account, or you paycheck. They will not sieze your house or anything like that fro the pittance you owe. The interest rate is OK, about 10%, so a home equity loan is a better idea, but a CC @ 18% + fees is stupid. The penalty is only 1/2% per month.

In the 2nd, they will file a "substitute for retuen" giving you only the 1040EZ type of deductions. They will charge a 25% delinquency penalty, plus the interest, plus the 1/2% per month penalty as above. The deficiency will prob double. THEN, they will go about collecting it as above.

Sceeme: If they owe you, no penalties, AND they pay you interest to boot.

Phouka: you really should ask the IRS where's the $. The normal proc is to just send it to you, unless you owe elsewhere. Assuming you do not owe elsewhwere, the IRS prob thinks you got the payment.

Those "horror stories" are mostly Urban Legends. (But when the IRS makes a mistake, BOY canit be a doozy! There is a documented case of a TP getting a bill for the amount of her SSN!)

And folks, I am a qualified Enrolled Agent w/ 16 years exp at this. So ask away.

[missbunny]

I agree that most of the bad things we hear about the IRS is probably based on ULs, but there are documented cases in which agents have moved extremely aggressively against innocent persons. Unfortunately, I can't back this up with any stats or links, not right now anyway. However, probably most agents are just doing their jobs by the book - it's the few Captain Kurtzes out there who make everyone look bad.

That said: if the IRS owes you because you filed and they made a mistake, then I would guess that they do pay you, with interest. But if you don't file and are due a refund, they don't send you a check. (Since penalties and based on the amount owed, if you don't owe anything and don't file, I think they are happy to keep your money.)

Inertia: I have updated my profile, but there wasn't much to add. I have a fear of revealing too much information to the teeming masses - we bunnies are shy.

[handy]

Cohn didn't have any assets. They were hidden behind numerous fronts.

You can file a false return for someone else.
Not that I would. It was in some book I read a long time before, 'Poison Pen Letters.'

[Satan]

WHen it comes to small sums such as the amount you are dealing with, there's a good chance you will simply not hear from them.

I have a friend who only filed when he was getting a refund, and not when he had to pay. This meant file a few years, not file a few, file a few, etc.

I can't imagine a worse practice than this, but he has never gotten contacted by the IRS and in fact, now that he has changed his tune and is paying, but doing it by filing the form which is an application for paying with installments - meaning, contact with the IRS every month - nobody has ever brought the other years' oversights to his attention.

DISCLAIMER: If you choose not to file and you do get busted, I am not in any way responsible. *I* pat my taxes like any good Ameican would! :D

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Yer pal,
Satan http://www.raleighmusic.com/board/Images/devil.gif

Still not smoking, but away from my meter!

[Danielinthewolvesden]

Missbunny: If you don't file, the IRS does not really know if you have a refund coming, so based upon little info, they usu do nothing. The IRS really does not like doing "substitute for returns" as they are based on so little info, ie only income. Satan is right, if you do not file, and you would only owe a bit, there is a chance the IRS might never contact you. This is a REALLY stupid bet. DON'T DO IT! Take my professional advice here, and file, even if you can't pay.

[douglips]

My parents have an airplane in partnership with some other folks, so there is a pseudo-corporate entity (the "partnership") which has to file taxes. I don't know all the details, I just know it's more paperwork.

Anyway, they paid their taxes every year, and one year they got a nasty note saying that two years prior they didn't pay, and here is the new total with penalties and interest. My mom sent them a copy of the cancelled check which proved they had paid the bill. The next year, the same thing happened for the same tax year, of course with even more penalties. The exact same cancelled check was copied and sent again.

This continued for 4 or 5 years. Calls to various agents assured them that it was taken care of and wouldn't happen again, but every year it did. Finally, my parents wrote a letter to their congressman with a summary of the ludicrous story and copies of all correspondence. The IRS was not heard from again.

I think they're much more friendly now, as they realize we pay their salaries.

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I'd give my left buns-cheek for a Wally sig.

[Danielinthewolvesden]

DOUG: partnerships don't pay Federal taxes. So I really can't say what happened. However, there may have been an "enity" problem, ie the enity not using the right EIN. I know a couple that used to switch SSN's: Hers, then His, as which one was 1st. This caused the IRS to assume that the other was not filing that year. The couple could not understand why they had to do it "the IRS's way". However, I convinced them.

[tatarasi]

Hi, I just discovered that I forgot some $500 in 2009 (for the 2008 taxes). I really had no clue about that until yesterday. I checked my check book, and indeed, there is no check written (so, it's not like I sent it and they didn't process it).

I didn't receive any notification all this time. I had the same address.

What should I do?

[silenus]

First, be on the lookout for zombies. Second, call the IRS.

[Procrustus]

First, be on the lookout for zombies. Second, call the IRS.

I'd call a CPA or tax attorney before I called the IRS. But, indeed, watch out for the zombies.

[ChockFullOfHeadyGoodness]

Hi, I just discovered that I forgot some $500 in 2009 (for the 2008 taxes). I really had no clue about that until yesterday. I checked my check book, and indeed, there is no check written (so, it's not like I sent it and they didn't process it).

I didn't receive any notification all this time. I had the same address.

What should I do?
It's been 2 years, they should get around to you this year. In 1999 I made a mistake on my return. I transposed two digits when reporting my withholding (X72X instead of X27X) and got a refund that was $450 larger than I should have. In 2001, I got a letter saying I screwed up and owed them $640 (the original overpayment + 2 years interest). Luckily that was the year of the Bush tax cut + $600 rebate check. I got a second letter saying "no rebate check for you - now you only owe $40"

The IRS moves slowly, but they'll still get you. Just like zombies.

[DiosaBellissima]

I'd call a CPA or tax attorney before I called the IRS. But, indeed, watch out for the zombies.

Speaking as one such professional who specializes in collection issues: don't call us over $500. Just pay it. It's probably closer to $1000, but of course there is interest on the amount you didn't pay. Just call them and either full pay or request an Installment Agreement (monthly payment). Do realize, though, that if you do an IA, you will continue to accrue interest and possibly penalties. Realize also that you already will have some penalties (failure to pay, etc.).

[Lukeinva]

When you file your return it goes to an IRS accountant for processing. Obviously your return will show that you owe $650, and of course you should have attached a check. If there is no check you'll receive a letter asking for the $650. The longer you take to pay the more interest and penalties you will accrue.

What won't happen is they won't sweep it under the rug and forget about it. It will continue to pop up as uncollected and you will continue to get letters. With each letter the amount will increase.

The best thing to do is call them and set up a payment schedule. They want their money and they will be very accommodating in setting up a payment plan. It can be as little as $10 bucks a month. They aren't trying to put you in the poor house, they just want to collect. If you are proactive they probably won't even fine you.

[md2000]

Zombies stil have to pay taxes. Just because you're dead does not mean the IRS will stop bothering you.