What Happens if You Don't Pay Your Taxes?

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• Two Types of Taxpayer Avoidance
• Penalties for Failure to File Taxes
• Penalties for Delinquent or Late Payments
• Three Types of IRS Agents You Could Encounter
• Find an Experienced Tax Attorney

What happens if you don’t pay your taxes? “You are in a world of pain, basically,” says Kathleen M. Pakenham of Vinson & Elkins in New York City. “The Internal Revenue Service (IRS) is one of the worst creditors out there, with enormous power to collect what they are owed.”

By choosing to cooperate with the IRS, you can potentially avoid the worst penalties for tax avoidance and have the option to set up a payment plan or offer in compromise to address tax debts. But by continuing to avoid the IRS, you may face tax audits, fines, seizure of assets, and criminal prosecution.

Two Types of Taxpayer Avoidance

Two basic types of tax avoidance are:

1. Filing your tax returns but not paying; and
2. Not filing at all.

“It’s better to file and not pay than to not file,” says Bernard S. Mark of Kestenbaum & Mark in Great Neck, New York. “Failure to file can be a misdemeanor under federal law and a felony under New York State law. If you file and don’t pay, assuming it’s because you don’t have any money and are not intentionally avoiding it, you will just get a bill.”

In either case, the best recourse is to face the music, the attorneys say. “The worst thing to do is to ignore the IRS,” Mark says. “By ignoring notices, you waive some rights under the IRS code, and it will be difficult to defend.”

Penalties for Failure to File Taxes

For those who fall in the first category—failure to file by the tax deadline—coming forward will usually result in leniency, says Bryan C. Skarlatos of Kostelanetz in NYC.

“A lot of people fall out of filing, and they are then afraid to come in from the cold. If you make a voluntary disclosure of past noncompliance, you can avoid criminal prosecution, and the IRS may or may not impose penalties.”

He says that those who haven’t filed for just a year or two don’t need an attorney; an accountant can work with the tax service on back taxes. “If you’ve been out of the system for several years, or if a large amount of income tax is due, that’s much more sensitive,” he says. “Then you need an attorney.”

Penalties for Delinquent or Late Payments

For those who have filed but are delinquent in paying their unpaid taxes, you can get square with the IRS simply by paying the tax bill, though there may be late pay penalties.

“Most people can work through this themselves and don’t necessarily need an attorney,” says NYC solo practitioner Ahron H. Haspel. “There is nothing you can do about interest, so there is no sense arguing about it, but you may be able to argue about penalties.”

“If you don’t pay those bills, the notices become more and more threatening,” says Barbara T. Kaplan of Greenberg Traurig in NYC. “That will eventually lead in most cases to a notice of intention to file a lien, a notice of intention to file a levy, and then an actual seizure of assets.” At that point, you need a tax attorney and a tax professional to help you sort through the tax preparation and payment options.

Three Types of IRS Agents You Could Encounter

And if the IRS comes calling? “The IRS has three types of agents,” says Skarlatos.

1. “The first is a revenue agent, who conducts civil audits;
2. The second is a revenue officer, who collects taxes that have been determined to be due;
3. The third and most sensitive is the special agent. They are special because they are criminal agents. They are only interested in putting people in jail. They have badges and guns.”

Find an Experienced Tax Attorney

Of course, it’s best not to let things get to that point by paying the full amount of total tax due by the due date. “The IRS has tremendous power and authority to make your life miserable,” Kaplan says. “You have rights, but there are time limits, so you have to respond in time. The best thing to do is work with the IRS. Build credibility with them. If you say you’ll do something, get it done.”

Visit the Super Lawyers directory to find an experienced tax lawyer in your area for guidance on tax liabilities and filing deadlines. If you want more information on federal tax laws, see our tax overview.