Failure to File Penalty

• If you don't file your return , the IRS may impose a failure-to-file penalty. This penalty amounts to five percent of the taxes you owed on the due date. The penalty increases by an additional five percent for every additional month you don't file. That amount can't exceed 25 percent of the total taxes owed, but will also include an additional failure-to-pay penalty (one-half of one percent for each month you fail to file). You can avoid these penalties only if you can demonstrate a reasonable cause for not filing.
  
  

Loss of Refund

• In some cases, you may be entitled to a refund from the IRS, in which case you will not be penalized if you fail to file. However, you cannot receive your refund without filing, which could cost you a significant amount of money. Once the statute of limitations on your refund runs out, the IRS is no longer obligated to pay it.
  
  

EITC

• If you are entitled to a Earned Income Tax Credit, you need to file a return to receive it within three years of its due date. Otherwise, you will lose the credit.
  
  

Criminal Prosecution

• If the IRS considers your failure to file a return an act of tax evasion, or a willful failure to file, you may be charged with a crime and tried in the courts. Penalties can range from fines of up to $500,000 to jail time up to five years. Tax fraud or tax evasion means intentional wrongdoing, rather than a mistake or an oversight.