Last Updated on Dec 20, 2019 by James W
Almost everybody experiences the temptation to avoid filing their tax returns. Ducking the IRS has severe implications, especially if the action is a result of your negligence.
Paying taxes is an inevitable obligation all over the world. To ensure that this rule is adhered to, governments have established agencies such as the IRS to oversee tax collection. Still, some people think that they can avoid paying taxes by ducking the IRS. This is impossible. You might believe that you’re getting away, but the taxman will eventually catch up. And, the consequences will be dire.
The IRS uses a methodical approach when handling evasive taxpayers. If the agency spots issues with your tax regime, they usually contact you by either mail or telephone. Some of the factors that may spur the IRS to initiate contact include failure to file returns for prolonged periods, big tax debts (over $25,000) and a history of non-compliance.
If the taxpayer fails to respond, the IRS sends a revenue officer to meet the tax defaulter physically. The way you conduct yourself when meeting the IRS officer affects the severity of the implications. This is why you might need professional help, about which you can read more information here. Otherwise, the following are the consequences of avoiding the IRS.
When the IRS notices inconsistencies in your tax returns, you are likely to be their next subject for a tax audit. This is also the case when you fail to submit returns.
Tax audits are usually done through mail or a physical visit by IRS officers to your office or residential premises. Both types of audit require the taxpayer to submit additional information to clear the doubts of the IRS. However, physical audits tend to be more thorough and are done when the concerns by the IRS are extensive.
The primary source of government revenue is taxation. This is the case throughout the world, which is why governments are so insistent on collecting taxes. If you fail to pay taxes (or pay at a later date), it is highly likely that the IRS will impose penalties against you. The amount of the penalty is dependent on your tax debt.
You can reduce the penalty by paying a partial amount of your tax liability before the deadline. This means that the IRS cuts down the fee imposed on taxpayers who show goodwill when they are unable to pay their tax debt in full.
After imposing a penalty, the IRS sets a timeframe in which the defaulter must pay their tax debt. If you are unable to pay within this window, the taxman resorts to collection activity.
The most common methods of collection used by the IRS include
· Wage garnishment – here, the IRS makes an arrangement with your employer (if applicable) to redirect a portion of your earnings to their accounts until the entire tax debt is settled.
· Tax liens – this involves the seizure and auctioning off your assets to raise the amount owed to the taxman. None of your possessions is exempted from this rule.
· Bank levies – this is similar to wage garnishment, with the difference being that the IRS contacts your bank and transfers the tax debt until it is fully settled.
Apprehension and Imprisonment
When the two actions mentioned above (penalties and collection) fail, the IRS has the right to call in the police to arrest you. This is followed by a criminal investigation, as well as a possible conviction in a court of law. The investigation is usually conducted by trained IRS officials.
If the investigators find sufficient evidence, they will certainly file a case at the US Tax Court. A convicted tax evader can either serve a 12-month prison sentence or pay a fine of up to $25,000.
You qualify for a tax refund of your payments to the IRS if you exceed your tax liability. However, the timeliness of such reimbursements is dependent on whether you pay your taxes on time. Instead of imposing fines, the IRS often delays the refunds as payback for failing to pay taxes on time. The delays can last for years especially if you fail to follow them up.
Loss of Tax Refunds
As mentioned above, the IRS neglects the processing of tax refunds if you evade or delay filing your returns. Even worse, those refunds might ‘expire’ if you fail to claim them within the three-year window period set by the taxman.
The follow-up process involving tax refunds is characterized by many processes and documents. Keeping in mind the three-year deadline, it is clear that the IRS is unwilling to give refunds to tax evaders. Such monies are usually donated to humanitarian organizations and other nonprofits.
Tarnished Reputation and Reduced Credit Score
Similar to other debts, tax liabilities have an impact on your credit score. A huge task debt is considered the same as a defaulted loan. This means that avoiding taxes will lower your credit score. You might be surprised, but a low credit score means much more than reduced chances of getting loans. People with poor credit scores are forced to pay high insurance premiums, can’t access mobile phone contracts, have challenges when seeking residential houses and in some cases, might be barred from employment opportunities. On top of these, you will be subjected to endless calls from debt collection agencies.
Avoiding the IRS is evidently more harmful to you that taking them on. If you have been summoned by the tax agency, it is advisable to seek expert assistance to avoid bigger problems in the future. You should also show cooperation if the IRS decides to conduct an audit on your business or personal residence.
The best way, however, of avoiding confrontation with the IRS is by filing your returns accurately and paying tax debts before the stipulated deadline. You should also keep good records of your transactions and earnings because the IRS might come unannounced.