If you don’t have the money to pay your taxes, it might cross your mind to try avoiding the problem by not filing at all. Unfortunately, this reasoning is badly flawed.
In a recent case, the U.S. Tax Court upheld the imposition of a federal tax lien by the IRS against a taxpayer who failed to file and did not provide the agency with information to evaluate his request for relief based in inability to pay. The taxpayer had received a deficiency notice after failing to file.
A case like this is a clear reminder that an ostrich-like approach doesn’t work when dealing with the IRS. If you don’t file or pay on time, it just makes things worse by ignoring notices from the IRS.
Keep in mind that even if you can’t pay all of your tax liability all at once, there may be payment options available. You could consider requesting an Installment Agreement, in which you pay over time. In some cases, an Offer in Compromise, in which you settle with the IRS for less than the full amount you owe, may be possible.
If you do not take steps to pay your taxes, or make arrangements for a payment plan, the IRS can assert the federal government’s claim against your property. It does this through a tax lien.
The process for putting such a lien in place is a formal one. After assessing a taxpayer’s liability, the IRS first sends out a bill that takes the form of a Notice and Demand for Payment.
If a taxpayer does not pay or make arrangements to pay, the next step for the IRS is to file a document called a Notice of Federal Tax Lien. This puts your other creditors on notice that the U.S. government is asserting a right to take your property in order to settle the tax debt.
Source: “Understanding a Federal Tax Lien,” IRS
Our firm handles situations similar to those discussed in this post. To learn more about our process, please visit our page on failure to file.