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Personal Finance > Taxes
Ignoring the IRS
February 12, 1999: 9:34 a.m. ET

Experts have some tips if you haven't paid your taxes and you don't know what to do
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NEW YORK (CNNfn) - His wife walked out on him, leaving him with the house and a 7-year-old daughter to raise alone. He was so scarred from the messy divorce he didn't file tax returns for 10 years.
     But one day the man, who didn't want to be identified, walked into Martin Kaplan's New York accounting office to settle his debt with Uncle Sam.
     "He said he'd been hiding long enough," Kaplan said. "And the IRS accepted the 10 years of returns without auditing a single one. I've found if you come forward voluntarily, the IRS doesn't come down harshly on you."
     You might assume that people who don't pay their taxes are anti-government, long-haired agitators who live in cabins out in the woods.
     But the truth is that millions of Americans every year fail to file with the Internal Revenue Service by April 15 -- whether it's because of financial problems, a bad divorce or a medical crisis.
     Even worse, tax deadbeats often avoid paying years after they've solved their problems out of fear of the IRS wrath -- even if they would get a refund. In the case of Kaplan's client, for example, he had refunds coming to him in 7 of those 10 years.
    
Ignoring April 15

     There aren't any statistics to show how many people fail to file their taxes, but one estimate says roughly 5 percent of all taxpayers don't pay, said Martin Nissenbaum, national director of personal income tax planning at Ernst & Young in New York.
     "It's always a better idea to fess up with the IRS," Nissenbaum said. Uncle Sam will inevitably find out, even if it does take several years -- and he'll be more willing to give you a break if you've come forward, Nissenbaum said.
     The penalty for failing to file a tax return is 5 percent a month on the balance, up to 25 percent, said Don Roberts, an IRS spokesman in Washington. If you don't owe any money, there's no penalty.
     And if you file a return but don't pay, the penalty is 0.5 percent a month on the balance, up to 25 percent.
     In addition to those civil penalties, the IRS could prosecute you criminally with a misdemeanor violation punishable by up to a year in prison and a fine of $25,000. However, prosecutors must show you intentionally didn't file your taxes.
     According to 1997 data, the most recent available, 3,500 people were convicted of criminal tax evasion, while 1.8 million paid civil penalties, Roberts said.
     And if you needed any more motivation to pay up, consider that there's no statute of limitations on past due tabs -- but of course there's a three-year limit to collect a refund.
    
How to settle your debt

     So what happens if you wake up one morning and can't stand the guilt? The easiest thing to do is simply send in your return with a check, Nissenbaum said.
     But if you don't have the money, the IRS might allow you to pay your debt in installments, Roberts said. Most installment plans average 1.5 years, but can last up to 10 years by statute.
     An IRS reform package in 1998 gives certain taxpayers the right to take up to three years to pay old tabs. The taxpayers must owe less than $10,000 and must have paid their taxes in the previous five years to qualify for this privilege.
     The government also allows you in some cases to argue that you simply can't pay the balance. The IRS will forgive the debt if it believes you have a credible case. The plan is called an "offer in compromise."
     "You don't have to be penniless, but you have to show why you can't pay," Roberts said. "We look at the facts and circumstances of each case."
     Kaplan, author of "What the IRS Doesn't Want You to Know," said he's had about six clients in the last two years who've walked in off the street and said they haven't paid their taxes.
     "I always have to ask them why," Kaplan said. "They're decent people. They're average people."
     In every case, the IRS was "extremely helpful" in digging up old records and forms so Kaplan could piece together the returns, he said.
     "You might want to hire a pro," Kaplan said. "In more than one case, an IRS agent has said to me that the mere fact a person has hired an accountant shows their good-faith intent to come out of the cold."
     In the case of the man with the messy divorce, Kaplan said his personal problems made him snap psychologically. The man ended up paying $7,500 in taxes, interest and penalties on a $3,000 tax tab -- and now he's making a fresh start.
     "He was an early bird this year -- he's already filed for 1998," Kaplan said. "And he's getting married again."Back to top
     -- by staff writer Martine Costello

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.