Failing to file your taxes can have far-reaching consequences, from mounting financial penalties to potential criminal charges. The Internal Revenue Service (IRS) views noncompliance as a serious matter and has several enforcement mechanisms to ensure taxpayers meet their obligations.
If you haven’t filed taxes in three years, for example, due to oversight or deliberate evasion, neglecting to do so increases your liability through penalties and interest while opening the door to audits, asset seizures and legal repercussions. Understanding these risks is essential to protecting your financial stability and avoiding escalation.
Failing to file your taxes on time can lead to significant financial penalties and interest charges, creating a compound burden over time. The IRS enforces these penalties stringently, and understanding how they accumulate can help taxpayers prioritize compliance and avoid costly consequences.
The failure-to-file penalty is among the more severe charges taxpayers face. The IRS typically assesses this penalty at 5% of the unpaid taxes per month — or part of a month — a tax return is overdue, up to 25% of the unpaid amount.
For example, if you owe $10,000 in taxes and fail to file for five months, the penalty could reach $2,500. However, if your return is over 60 days late, the minimum penalty is 100% or $435 of the unpaid tax, depending on which is less.
This penalty underscores the importance of filing on time — even if you are unable to pay the full amount due. Filing an extension by April 15 can mitigate this risk, but an extension only postpones the filing deadline, not the payment deadline.
There is a failure-to-pay penalty when you do not pay the taxes you owe by the due date, regardless of filing time. The penalty is 0.5% of the unpaid taxes per month or part of a month, and if the payment is late, up to a minimum of 25% of the unpaid amount.
For instance, if you owe $5,000 and delay payment for six months, you accrue an additional $150 in penalties. Adding a failure-to-pay penalty reduces that to 0.25% a month, provided an installment agreement is set up.
In addition to penalties, the IRS charges interest on unpaid taxes, which compound daily. The rate is determined quarterly, typically the federal short-term rate plus three percentage points. For example, if the federal short-term rate is 1%, your annual interest rate is 4%. If you owe $10,000, you can accrue $400 in annual interest.
The Internal Revenue Service has a range of enforcement tools to compel compliance from taxpayers who fail to file returns. From notices like Notice CP59 and demand letters to a Substitute for Return (SFR) based on third-party data, they use many ways to reach out. Failure to respond to these measures may lead to the following:
Failing to file taxes can escalate from a civil matter to a criminal offense, depending on intent and circumstances. The IRS, often in collaboration with the Department of Justice, prosecutes individuals to enforce compliance and deter others:
Tax compliance can be challenging, especially when navigating complex regulations, deadlines and unexpected issues. Here are answers to frequently asked questions to help taxpayers better understand their obligations and avoid common pitfalls.
Yes, filing is required if your income exceeds the IRS filing thresholds, which vary based on filing status, age and income type. For example, for 2023, a single filer under 65 must file if they earn $13,850. Certain situations, like self-employment income over $400 or receiving advance premium tax credits for health insurance, also require filing regardless of taxable income.
Filing is beneficial, even if not required, as it allows you to claim refunds for overpaid taxes of eligible credits like the Earned Income Tax Credit (EITC).
The IRS has no statute of limitations on unfiled tax returns, so you are technically required to file for all past years. However, the agency typically focuses on the most recent years for enforcement. Beyond this, older tax debts may also trigger action if the IRS identifies unpaid liabilities or unfired returns.
After three years, you could forfeit refunds, incur penalties and interest and see the start of enforcement actions like tax liens or wage garnishment.
Failing to file taxes for five years can lead to penalties, interest, SFR, enforcement actions like bank levies, loss of refunds and passport restrictions.
Failing to file or pay taxes is more than an administrative oversight. It can have severe financial and legal consequences. Staying informed and acting promptly is crucial to avoid compounding liabilities and more serious criminal charges.
Since 2001, Polston Tax Resolution & Accounting has helped businesses and individuals prepare their tax returns, develop custom financial strategies, navigate state tax debt resolution and more. File your taxes correctly to stay compliant and get the most out of your potential returns. Our tax preparation professionals can also help you reduce your tax liabilities and represent you during IRS tax return examinations.
Contact us today to schedule a consultation and start filing your taxes the right way.
