What it is:
How it works/Example:
For example, let’s assume that John Doe forgets to file his lenders, and the financial institutions that hold his saving and investment accounts all report information on John Doe’s accounts and income to the Internal Revenue Service.
John Doe thinks that if he doesn’t file a , he is not liable for any . This, of course, is incorrect. The determines, based on the information it receives, that John Doe owes at least $15,000 in back . The sends John Doe a notice of proposed assessment, which represents its estimation of what John owes. But in addition to requiring John Doe to pay the $15,000, the also assesses $5,000 of interest and penalties.
Why it matters:
Back taxes can be resolved with the
Sometimes the will apply future tax refunds toward a debt. In some cases, the will seize property, seize assets, or place liens on property. Failure to pay can also involve imprisonment.
Many people choose to hire a private professional to help negotiate a payment plan with the , though this is not required and the field is the subject of considerable controversy. Individuals and businesses often choose (and in many cases are required to) make estimated payments on a periodic basis throughout the year in order to avoid owing.