Now, let's say you decide not to file this year. As with any other agency that's owed money, the government wouldn't be pleased at all. Initially, it would send you a letter notifying you of your forgetfulness. If you failed to respond, you would receive more letters. Eventually the government would send a final letter, but this time it would include a bill. It turns out that the government has a right to determine what your income would be based on past records. This is known as a Substitute for Return or SFR.
Let's say you were in a higher tax bracket during your last filing, but since then, you were laid off and had to take a considerable pay cut to find work. If the government bases its assessment on your previous employment, your bill would be much higher than it otherwise should be. Even if, for example, your job remained the same with similar earnings, most SFRs include only the standard deductions. Any other deductions that you may be entitled to claim will not be included. Furthermore, there are penalties and fines associated with failure to file and failure to pay charges. These penalties can be as much as 50 percent to 75 percent of the original amount owed.
Once the government has sent you a bill, you have two options:
- You pay the taxes (even if it's an overpayment). You can go to tax court later to protest the amount and refile, this time including the appropriate deductions and so on.
- You decide not to pay at all.
If you continue to pursue your personal revolt against taxation, it could cost you even more. The government has the right to recoup its money as it sees fit. It can:
Simply put, failure to file, failure to pay and tax evasion can result in any number of civil and even criminal punishments, including imprisonment.