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As Tax Day looms, you may wonder how high the tax 
man should rank on your list of creditors. Is it better to postpone paying taxes in order to pay off credit card debt, or to keep the electricity running?
The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article by Carrie Kirby (WiseBread.com)
Here’s what happens if you’re not able to pay everything you owe to the IRS, as soon as you owe it:
1. You’ll Pay a Penalty
Assuming that you filed your tax return on time but didn’t pay your full tax bill, the IRS will charge you 0.5% of what you owe, every month until you pay, up to 25% of the debt. Therefore, if you still owed $1,000 when you filed your return on April 18, you’ll owe an additional $5 a month.
It’s a very good idea to file your return on time, or file an extension, even if you won’t be able to pay right away — fees increase if you haven’t filed a return by Tax Day. Also, filing on time might get you a break: The IRS says that if you file for an extension or file your return, you may not have to pay the penalty if you’ve paid 90% of what you owe by Tax Day.
2. You’ll Pay Interest
The IRS isn’t going to lend you that money interest-free. The rate on money you owe to the IRS is currently 4%.
3. You’ll Get a Bill
If you haven’t filed your tax return at all, the government will kindly figure out how much you owe for you and send a bill. Actually, not so kindly, because the way they’ll calculate your taxes, you’ll end up owing more than you would have if you’d done them yourself. The government doesn’t have access to all your financial records, so they may not give you credit for your deductions.
Even if you file your return, if you owe money, eventually you’ll start getting mail about it from the IRS.
4. You Could Get a Lien on Your Home
If you don’t pay those bills (or show the IRS they’re wrong and you don’t owe), the next step is putting a lien on your property — usually your house, if you own one. This tends to happen if you owe $10,000 or more and haven’t worked out a plan with the IRS to pay it off.
A federal tax lien is a legal document that says if you sell your property, the proceeds will go toward your debt before you see a dime. This could make it tough or impossible to take out a mortgage on your home, and complicate the deal if you try to sell your home.
The tax lien will be reported on your credit report and will stay there for seven years, even after you pay the debt. This can make it impossible to get approval for new credit cards or other loans.
5. You Could Lose Your Passport
Thanks to a new law, the State Department can now revoke your passport (or refuse to issue you one) if you owe the IRS $50,000 or more in delinquent debt so, if your plan was to skip out on your debt, you won’t get far.
6. The Government Could Seize Your Property
It’s called a levy, and it means the IRS can take your Chevy. Or your Ford, or your RV, or boat, or house. They can even garnish your wages or take what you owe right out of your checking account. If you think owing the mob is bad, try owing the federal government.
In the IRS’ defense, it doesn’t start seizing citizens’ property out of the blue. You’ll get lots of mail warning that you’re in default, telling you that you have the right to a hearing, and explaining that next, they’re coming for your stuff. Don’t ignore that mail.
7. You Could Pay Larger Penalties
If the IRS determines that your failure to pay in full was due to negligence or fraud, the penalties could climb to 20% or even 75%.
8. You Could End Up in Court
The IRS would rather work with you to get the money but, if you’re recalcitrant or showed intent to defraud them, they can charge you with one or more felonies. In 2008, they charged actor Wesley Snipes with conspiracy to defraud the government for refusing to pay taxes on $38 million in earnings. Snipes had joined a movement of tax deniers who interpret various laws to mean that paying taxes is not required.
9. You Could Go to Prison
Most people who owe the IRS don’t do time, but Snipes did. He was convicted of three misdemeanors related to his failure to file tax returns and served three years. It could have been worse: Snipes was acquitted for the felonies he had been charged with.
10. Maybe Nothing Will Happen
If the government doesn’t have record of your earnings — for instance, if you work for cash and don’t get dividends on investments — the IRS may never notice if you don’t file a tax return and don’t pay a dime. Flaking on filing is definitely a bad idea, though: Not only will you live in fear of all the consequences mentioned above, but if your earnings are modest, you could be missing out on the earned income tax credit and other benefits of being on record as a wage earner, like the ability to get a mortgage loan.
Conclusion
It’s a good idea to keep in touch with the IRS if you owe them money. In fact, if you file your tax return, pay what you can, and then call them up, they may work out a payment plan with you, or even settle for less than the full amount you owe.