Yes, the Internal Revenue Service (IRS) will pursue you in either case, whether you have not filed your tax return for one or more years or if you have filed your tax returns but have not worked with the IRS to establish some form of payment plan or settlement offer for the tax you owe.
When you do not file your federal income tax return, the IRS will generally file one for you. A return filed by the IRS on your behalf is known as a substitute return. Your tax in a substitute return is estimated based on previous returns you have filed, as well as any other information the IRS has about you and your income. Usually when the IRS files a substitute return for a taxpayer, the taxpayer will end up owing more money to the IRS than if the taxpayer had filed the return in the first place for several reasons:
More actual tax owed. When the IRS files a substitute return for you, they generally will not apply all of your allowed deductions. For example, they may use the standard deduction on your return rather than your itemized deductions. This means that you will owe more tax to the IRS.
Failure to File penalty. When you do not file your return, the IRS charges a penalty on your unpaid tax at the rate of 5% per month. The IRS will continue to charge you 5% per month for up to 5 months, which means you will owe whatever amount of tax you owed originally plus another 25% of that amount.
Interest. The IRS also charges interest on your unpaid tax balance. The interest rate the IRS charges is adjusted quarterly based on the current market interest rate.
When you owe money to the IRS, the IRS will begin to use various methods to notify you of the unpaid tax liability. Initially, the IRS may give you the benefit of the doubt, taking the stance that it is possible you do not realize you owe tax to them. But as time passes, if you do not work with the IRS to address the tax liability, they will escalate their approach. Ultimately, they will obtain a tax levy against your personal property. The tax levy allows the IRS to garnish your wages, seize your bank accounts, and take your car and home if necessary.
From the time the tax is assessed, the IRS has 10 years to collect it. Given the power the IRS has through a tax levy to seize your personal property and the 10-year statute of limitation on collecting federal income tax, the IRS will generally pursue you until they collect the money they are owed.
What should I do if I cannot afford to pay my taxes?
You should generally start by filing all of your tax returns if you have not done so already. Filing your returns will minimize the addition of the various penalties and interest applied by the IRS and allow you to begin to work out some arrangement with the IRS. You should also contact a tax attorney.
A tax attorney will be able to evaluate your unique situation, explain to you how the tax laws and process work in your case, and help you take the steps necessary to address your tax liability. This can include a payment plan or an offer in compromise.
If you complete the short form below, it will allow a tax attorney to start this process. Doing so is completely free of charge, 100% confidential, and does not obligate you to anything further, but it will get your information in the hands of a tax attorney so you can start getting the help you need today with your tax issues.