What Happens If I Don't Pay the IRS?

Tax Debts

One of the worst things you can do when you owe money to the Internal Revenue Service (IRS) is to ignore your debt. However, if you are suffering a financial hardship, you may believe that disregard is your only option. Not true. If you can prove to the Internal Revenue Service that you can barely meet your everyday living expenses, much less satisfy your tax debt, you do have other options. Ignoring your tax debt does not make it go away.

If the IRS can prove that you purposely did not pay your taxes, your assets and your freedom are in jeopardy. If not paying the IRS is an honest mistake, but you are still unable to pay the money you owe, you will not go to jail if you keep open the lines of communication with the IRS. However, you still need to submit your return before April 15. Once the IRS receives your return and notices that you owe money, you will be sent a bill stating the amount of monies you owe, the interest and the due date. If you are unable to pay by the due date, you will be responsible for a 5 percent late filing penalty each month that your tax debt is outstanding. The maximum penalty you can be charged is 25 percent. If you know you will not be able to pay the IRS by the due date, it is best you try to qualify for an alternative option.

If you are unable to fulfill your entire IRS debt but you are able to pay a portion, you may qualify for an "offer in compromise" (OIC). An offer in compromise is an agreement between you and the Internal Revenue Service that allows you to settle your entire tax debt for a smaller amount. You have to meet certain guidelines before the IRS agrees to an OIC. For more information on the guidelines and qualifications see resources.

If you do not have any money left after paying your monthly expenses and you do not have any assets, and you can prove it, the IRS may grant you a "currently non-collectible" status. Basically, a non-collectible status means that you currently do not have the means to re-pay your tax debt. A "currently non-collectible" status does not mean the IRS has written your tax debt off. You are still responsible to pay your tax debt, and your yearly tax return will be monitored closely to ensure that you really are unable to satisfy your IRS debt. The IRS can attempt to collect a tax debt for 10 years. For more information see resources.