In the first part of the two-part series, the Tax Resolution Institute examined what triggers an IRS investigation, and the first round consequences that come from not filing tax returns.  In the second part, we will look at how not filing a return can become a criminal matter if the IRS believes you willfully chose to not file your income tax returns.  If willful tax evasion is suspected, IRS Criminal Investigation Division (CI) may be called upon.  This is the last thing you want to face if you have not filed a return.  In addition we will look at what collection action the IRS may take if the delinquent tax problem is seen solely as a creditor-debtor issue.  In any case it is clear to see that the consequences of not filing tax returns can be severe.

Severe Consequences for not Filing Tax Returns

consequences of not filing taxes

Consequences of Not Filing Tax = Worry

In the federal system, the consequence of not filing tax returns is a misdemeanor at a minimum.  In some instances, failure to file may be prosecuted as a criminal felony.  History shows that certain individuals are more likely to be prosecuted by the IRS than others.  The complete guidelines regarding criminal non-filing are contained in the Internal Revenue Manual.  For example, a taxpayer may be scrutinized at a higher level if their occupation and education denote prima facie (reason to assume as correct) evidence that they have knowledge concerning their filing obligations.  That is, if the IRS thinks that you should know better based on your profession, educational background or past experience, then they are way more likely to come after you.

In instances where a taxpayer has failed to file tax returns, he or she should be mindful to look indications that the IRS has referred the matter to CI. If the IRS representative identifies himself as a “special agent”, has a gold badge with the words “Criminal Investigation Division” or gives the taxpayer his “rights against self incrimination”, it most likely means trouble.  Suddenly, the consequences for not filing tax returns have become much more serious that filing returns and paying delinquent liability.  It is unwise to speak directly with an IRS Special Agent.  If you are put in this position you should immediately seek the help of an attorney (possibly criminal defense as well as tax) and possibly an accountant that is familiar in this area.

Other Consequences for not Filing Tax Returns

For most taxpayers, the act of non-filing is not considered by the IRS to be a criminal issue, but rather a creditor/debtor issue between the Internal Revenue Service and the taxpayer.  The IRS, acting as the largest collection agency in the world is an extremely aggressive creditor and the consequences of not filing tax returns will be felt relatively quickly.  IRS Revenue Officers have been given broad statutory power to collect delinquent tax debt.  Unlike other civil cases pertaining to “ordinary” debt, the IRS need not reduce the tax debt to civil judgment in a court of law to take collection action.

Rather, the IRS need only rely on the fact that a tax deficiency has been assessed and the taxpayer has been properly notified of the tax deficiency.  This is accomplished by issuing a Notice of Intent to Levy to the taxpayer. Once these prerequisites are met, the IRS as sanctioned through federal statute, may take collection action against the taxpayer; levying, garnishing and seizing upon the taxpayer’s property.

Unfiled Tax Returns = Take Action Today

Delinquent tax returns must be prepared and filed to address the threat of IRS collection . The question that usually arises is “What is the best manner to go about filing these returns?”  There is no single answer to this question. It depends on each taxpayer’s situation.  The ultimate goal is usually to file the returns as soon as possible.  Preparing and filing returns is more financially attractive than letting the IRS assess the tax based upon Substitutes for Return (SFR).  As stated in the first part of this two-part article, an SFR assesses tax without most allowable deductions and credits being applied.

The Tax Resolution Institute does not want our clients come for help at the last possible moment, especially if their funds are at risk.  If a client’s wages have been garnished or the IRS has levied their bank account, it is more costly and difficult to resolve their case.  It is also important to remember that the failure to file penalty is 5% of the amount due per month up to a maximum of 5 months (25%) for not filing a tax return.

The Tax Resolution Institute Can Help

We need to emphasize that the best option always is to file on time.  Even without full payment, filing a timely return limits exposure and is the first step in getting into compliance which is necessary to negotiation with the IRS.  If you have yet to file your tax return/s and you are worried about the consequences, call the Tax Resolution Institute at (818) 401-5925 or email us at