With 330 million Americans, will the IRS notice itty-bitty me if I don’t pay my taxes? What’s the worst that could happen?
Perhaps this question is one that you’ve considered. After all, the gigantic tax collection agency of the United States of America, with its outdated technology and its complicated rules and regulations, can hardly be expected to enforce the rules for millions and millions of Americans.
This article will outline some of the consequences you can expect if you don’t pay your taxes. There is no guarantee that all of these things will happen to you, or on what timeline, but you can safely assume that getting away with tax fraud won’t be as easy as getting away with two pieces of your six-year-old birthday cake when you were only meant to have one.
The 10 Year Statute of Limitations
First of all, a teaser. The IRS has the right to pursue unpaid taxes for up to 10 years. On the flip side, if you get away with not paying your taxes for 10 years, then you may safely say that you’re off the hook.
The IRS runs by a 10-year statute of limitations, which means that after 10 years, the IRS will write off your tax debt and delete the related records from their files. The IRS doesn’t have a vested interest in advertising this information, so it is not widely known.
Waiting out the IRS once you are on their radar is not generally a tenable strategy. Experienced tax relief attorneys know that the IRS will throw all their heaviest tax-collection penalties at you as the 10-year deadline looms closer. The IRS will use all the legal strategies at their disposal in order to collect the money before the 10-year statute of limitations takes effect.
The Worst-Case Scenario
Although it would hurt to get hit with penalties, interest, and fees for tax evasion, most people would agree that the very worst-case scenario would be going to jail. Is it possible for the IRS to put people in jail?
The short answer is yes. Jailtime is a real possibility for tax evasion. Several high-profile cases prove this point. Wesley Snipes, the American actor who played Blade in the Marvel comics Blade trilogy, served jail time for defrauding the government out of $7 million dollars in one tax cycle. Lists of celebrities who have served jail time can be found here and here.
The average jail time for tax evasion is three to five years, and it is not solely reserved for famous people. Anyone who shows a pattern of hiding income from the government, or a history of defying US tax law, is liable to receive a prison sentence and a criminal record and still must repay their taxes along with expensive fraud penalties and interest.
If you have been caught in accidental or deliberate tax evasion, you will not go to jail if you show a willingness to work within the system and make amends. The government provides many programs to help citizens return to good standing if they have fallen behind in their taxes.
The Financial Penalties
If you don’t pay your taxes, the financial penalties will pile up quickly. If you don’t file your return by tax day, the IRS applies a penalty of 5% of the tax owed for up to five months. If the return is filed more than two months after the due date, the penalty will be the lesser of 100% of the tax required to be paid on your return or $435.
In addition, the IRS will assess interest. Interest will be required in addition to any late penalties. Interest owed is determined by the federal short-term rate (usually between 1% and 4%) plus 3% for a total of 4% to 7%.
Of course, in addition to fees and interest, you will also be assessed for the full amount of the original taxes owed. Once taxes are in arrears, they are called back taxes. Back taxes, penalties, and interest make up the direct financial penalties that the IRS may require for a delinquent taxpayer.
The IRS has the legal right to collect taxes directly from your employer by taking money out of your paycheck. The IRS can also collect taxes by accessing (and draining) your bank accounts, placing a lien on your house or car, and even seizing property.
If the IRS has evidence that you have avoided your tax obligations, the IRS can summon you for court dates, withhold your social security payments and future tax refunds. For ex-pats, one of the most potent IRS penalties is its ability to coordinate with the US State Department to revoke your passport or refuse to renew your children’s passports.
In conclusion, the IRS has significant legal means for punishing US citizens who attempt to avoid paying their taxes. Jail time, financial penalties, withheld wages, and the seizure of personal property are all tools that the IRS uses to enforce the tax code. Although the 10-year statute of limitations makes it impossible for the IRS to pursue tax collection from accounts that are over 10 years old, it is not likely that the IRS will allow the 10-year mark to slip by unnoticed.
If you’ve accrued tax debt and need help sorting it out to avoid further penalties, there is help for you. Our tax relief lawyers offer free consultations and give straight answers to help you resolve tax debt in the least painful way. Ask about our track record of helping over 15,000 people just like you get out from under the IRS.