There are a number of reasons as to why a person may have failed to pay their income taxes for a year or longer. Some common reasons that explain why people may neglect to pay taxes include illness, an unanticipated emergency, personal hardship, natural disasters, and/or death. Unfortunately, simply refusing to pay your personal income taxes for no reason is not without consequences.
In general, it is illegal to deliberately refuse to pay one’s income taxes. Such conduct will give rise to the criminal offense known as, “tax evasion”. Tax evasion is defined as an action wherein an individual uses illegal means to intentionally defraud or avoid paying income taxes to the IRS. A person who is convicted of committing tax evasion may receive a significant prison sentence and/or substantial criminal fines.
In contrast, a person who does not pay income taxes by mistake or for some other reason like a medical condition, will not typically receive a criminal punishment. However, the IRS may impose a penalty fee on persons who do not pay their taxes or who fail to pay back taxes on unfiled income tax returns.
Accordingly, if you have forgotten to pay your income taxes or have not paid them for some other legitimate reason, then it may be in your best interest to contact a local tax attorney for further advice. A tax attorney will be able to assess your options and can determine whether there are exceptions to your situation.
For example, a tax attorney can find out whether there is a way you can request an extension to pay your taxes or can speak to the IRS on your behalf to see if they would be willing to reduce the amount of fees that you owe on unpaid income taxes.
Additionally, a tax attorney can conduct research on the specific reason that you failed to pay your income taxes. In some instances, having a valid reason for not paying your income taxes may help you to avoid criminal consequences.
What Happens When a Person Fails to Pay All or Some of Their Tax?
Depending on the context, when a person unintentionally fails to pay all or some of their taxes, the IRS or a state tax agency will send them a notice of deficiency to their home address. The notice is not a bill, but rather an alert to inform the person about taxes that are missing or that they still owe to the IRS or a state government tax agency.
Those who agree with the amount provided in the notice of deficiency, can and should directly pay the amount of taxes owed to the IRS. This can help them to avoid interest and late fees. The IRS also permits individuals to set-up payment plans if they are unable to pay back the full amount of unpaid taxes immediately.
If a taxpayer is past the point where they can pay taxes without consequences, then the IRS may also impose a monetary penalty. The monetary penalty will start to accrue as soon as payments are overdue and will typically consist of a certain percentage of the total amount of overdue tax payments. However, penalty fees for not paying income taxes cannot exceed a specific portion of the total sum of unpaid taxes in a given month. Thus, there is some leeway.
What If the Amount Due is Incorrect?
If a person receives a notice of deficiency and the amount of tax payments still owed is incorrect, then they will have an opportunity to contest it. Some ways that a person may be able to correct the amount of taxes that are due include:
- Using a taxpayer advocate service: This is a free program that is funded by the IRS. If an individual has trouble contacting the IRS or does not have enough funds to cover the amount they owe in unpaid taxes, then a representative from this service may be able to assist the taxpayer in resolving those issues.
- Filing a petition with the United States Tax Court: The U.S. tax court is a federal trial court that only has the authority to resolve tax disputes or other tax-related matters. A taxpayer can file a petition with the U.S. tax court, which can then hear the matter and issue a decision on their case.
- Submitting a request to the Office of Appeals: The Office of Appeals is a service that operates under the IRS. Specifically, it acts as a third-party mediator between taxpayers and the IRS in order to help them resolve tax disputes.
- Consulting a tax attorney: An individual also has the option of hiring a tax attorney. A tax attorney can intervene on the taxpayer’s behalf and communicate with the IRS. They can also argue against the amount of taxes due and try to get them reduced.
What are the Consequences of Not Paying One’s Income Tax?
As previously discussed, an individual who fails to pay their income taxes, but has a valid reason or is willing to admit they were negligent and forgot to pay, will likely only receive a late fee and an increased interest rate on the amount owed.
In contrast, a person who does not offer a valid reason for missed tax payments, deliberately misrepresents the reason, and/or creates an intentional scheme to avoid paying their taxes can be arrested and charged with a felony offense.
Again, an intentional avoidance to pay or report taxes to the IRS is a criminal offense. Offenders may either be charged with tax evasion or income tax fraud. The IRS will then determine whether the taxpayer made a genuine mistake or if they were intentionally attempting to defraud the agency.
If it is the latter and the taxpayer is convicted of tax evasion in a criminal court, then they could potentially receive a prison sentence for up to five years or longer and/or may have to pay criminal fines of up to $250,000. This amount will be in addition to whatever they owe in taxes, which will still have to be repaid. Failure to repay criminal fines and taxes can also result in a garnishment of wages and assets, including the taxpayer’s home.
Should I Hire an Attorney?
If you have not filed or paid your income tax returns for one or more years, then it is strongly recommended that you consult a local tax attorney as soon as possible. An experienced tax attorney can discuss how various tax laws may affect your situation and can explain the different penalties that you might receive. Your attorney can also help to fix any errors on your tax return by communicating with the IRS on your behalf and resolving matters efficiently.
Additionally, depending on the facts of your case, you may want to hire a local criminal lawyer as well. An experienced criminal lawyer can assist you in devising a strategy and preparing a solid defense against any pending criminal charges, such as tax evasion. Your lawyer can also assess your options and can advise you on whether it may be better to take a plea deal in your situation, rather than going to trial.
Finally, regardless of whether you hire a tax attorney to assist you with IRS issues or need to consult a criminal lawyer to help you determine if you should take a plea deal or go to trial, both types of lawyers will be able to provide representation in their respective courts (i.e., tax and criminal courts).