What You Should Be Aware Of

No one likes paying taxes, but some notorious efforts to avoid doing so have led to serious consequences. Al Capone was convicted of tax evasion in 1931 and sentenced to more than a decade in prison. Willie Nelson was hit with a $16.7 million tax demand, and the Internal Revenue Service subsequently raided his home and seized his property when he didn’t pay up.

Would you suffer consequences like this if you don’t pay your tax bill? It depends on several factors.

Just Because You Don’t File, Doesn’t Mean You Don’t Pay

Not filing a tax return won’t protect you from paying taxes. Data from the annual 1099 and W-2 forms issued under your Social Security number give the IRS pretty good insight into what you earned, regardless of whether you file.

Not filing makes the situation considerably worse if you owe taxes. You’ll face a failure to file penalty and a failure to pay penalty, a double hit that will ratchet up what you owe. The IRS will prepare a Substitute for Return (SFR) for you based on the annual income it has on record without considering any other factors. This means your initial tax balance most likely will be more than what you would have owed if you’d just filed a return in the first place.

Among things SFRs won’t include are estimates of any business deductions against gross self-employment income, tax credits, and dependents, according to Logan Allec, CPA and owner of tax relief services company Choice Tax Relief.

“The terrible thing about SFRs is that they’re not prepared with the taxpayer’s best interests in mind,” he said.

The IRS will assume that the taxpayer is married and filing separately rather than married and filing jointly if the taxpayer is married, Allec said. It will assume that an unmarried taxpayer is single and can’t potentially file as head of household if the taxpayer is unmarried. All these factors can result in a much higher tax bill because they don’t include numerous tax breaks.

The IRS Will Start Collecting What’s Owed—And More

The repercussions are numerous if you don’t pay after you have filed a return or the IRS has filed one for you. Your tax bill will begin steadily increasing until you satisfy the debt. A 0.5% penalty will be added on each month, calculated on your unpaid balance. Interest will accrue as well, and it’s based on both your tax balance and the added-on penalty amounts. Interest is compounded daily.

If you don’t pay, you’ll ultimately face a tax lien or a levy, a court order giving the IRS the right to claim your property. A levy occurs after the lien is in effect and the IRS actually collects. The IRS can and probably will seize your income, including Social Security and retirement benefits, as well as bank accounts and tangible property such as your car or home.

How Much Time Do You Have?

If the IRS prepares and files an SFR for you, you’ll receive a Notice of Deficiency, giving you 90 days to file your own return or to appeal the situation in tax court. The IRS will begin the collection process based on the SFR if you do nothing.

You should receive a notice from the IRS stating how much you owe within 60 days of filing your return if you haven’t paid the entire balance due. This starts the collection clock ticking

The IRS has 10 years to take steps to collect from you or until you pay the entire balance due, whichever comes first, beginning with the date your tax obligation was assessed.

You Have Some Options If You Can’t Afford Your Tax Bill

The IRS recognizes there are situations in which your nonpayment is due to financial difficulty and circumstances beyond your control. You’re not just shrugging and shaking your head and saying you don’t want to pay up. If you honestly can’t lay your hands on the cash without suffering undue hardship, numerous options are available:

• Currently not collectible (CNC) status: The CNC status indicates that you’re suffering a temporary financial hardship. The IRS won’t begin the collection process until your situation resolves.
• Offer in compromise: This option involves negotiating and entering into an agreement with the IRS to pay just a portion of your entire tax debt. You must establish with the IRS that it’s unlikely you’ll ever be able to pay the full amount you owe.
• Installment agreements: The IRS offers two types of installment agreements that will allow you to pay off your tax debt in monthly increments. The short-term option gives you 120 days to pay if your total tax bill, including penalties and interest, is less than $100,000. The long-term plan isn’t subject to a prescribed time limit, but your tax bill must be less than $50,000. A set-up fee applies, but it can be reduced for low-income taxpayers.

Reviews, denials, and approvals of offers in compromise are handled by the IRS’s Centralized Offer in Compromise (COIC) Unit.

“The offer in compromise process can feel like an audit in that the IRS will heavily scrutinize the taxpayer’s financial situation before agreeing to a lower settlement amount,” Allec said. “If the IRS COIC Unit rejects a taxpayer’s offer in compromise, the taxpayer has the right to appeal that rejection with IRS Appeals. We’ve had many offer in compromise rejections reversed in Appeals.”

The Bottom Line

The worst thing you can do if you owe the IRS money is nothing. Take the necessary steps to resolve the situation to your best advantage.

You may not want to try to tackle the challenge on your own, however. Enlist the help of a tax professional for the best results, even if it’s just to file a return. The IRS offers several programs and services if you can’t afford professional help, including IRS Taxpayer Assistance Centers, Volunteer Income Tax Assistance for those who earn $67,000 annually or less as of 2025, and the Tax Counseling for the Elderly program for those who are age 60 or older.