There is a popular saying that the only two certainties in life are death and taxes. Some people would love to avoid their obligation when it comes to paying taxes to the federal government. There are many tactics that people employ to minimize their responsibility to pay taxes.
From deferred income to creating trusts, there are myriad potential tax schemes that can help people prevent paying more than they absolutely must. Not all attempts at decreasing tax liability are a smart decision, however.
Some people actually avoid filing their annual tax return with the IRS in a hope of side-stepping their tax obligations. Unfortunately, the end results of failing to file taxes can be quite serious, leading to financial and even criminal consequences.
What happens when you don't file a return?
For many people, the most pressing concern about failing to file a tax return is what the IRS will do. In most cases, the IRS will use income reporting from employers, clients and financial institutions to create an estimated return in your name. They will then send you a copy of this return and request that you approve it.
Typically, you must respond to the request within 30 days, although those who don't do so will receive a second notice providing them with an additional 90 days to respond. During that time, the IRS will charge fees and interest on the amount of taxes owed that increase with each month. In other words, the longer you wait to approve an IRS generated tax return, the greater the amount you will end up paying.
Depending on your financial circumstances, it may be possible to pay your IRS debt over the course of many months, although you will likely incur additional interest and penalties during that time. Obviously, filing by the appropriate deadline and paying your taxes as owed and in full is the best option for the average American taxpayer.
Avoiding your tax obligations could be a form of tax evasion
People make mistakes, and so the IRS is likely to look the other way if you simply forget to file your taxes one year. Provided that you pay what is due and you file in a timely manner in the future, criminal consequences are unlikely.
However, if you habitually refuse to file taxes in an attempt to avoid paying them, that could result in tax evasion charges. Facing criminal charges related to tax evasion is a serious concern. You could end up suffering consequences that include jail time, massive fines and a requirement to repay taxes that you attempted to avoid.
If you and the IRS do not agree about how to handle your income tax situation, investigating your rights under the law is a good idea. Once you know what the likely consequences will be and what your options are, you can make a more informed decision about handling allegations of tax evasion.