Around this time of year, I get asked (a lot) about what happens when you don’t pay your taxes. That’s usually followed up by some suggestion that taxpayers who get into tax trouble do so deliberately.

That’s not been my experience. And it’s not what the data bears out. Statistically, most taxpayers pay what they owe—and they do it on time. Anecdotally, I can report that most of my clients who get into trouble were, at one point, trying to do the right thing, they just got overwhelmed or stuck, and then they couldn’t figure out how to dig out of the hole.

One of the most common reasons that this happens is, ironically, optimism. Taxpayers often assume that they can file/pay/fix something later. And you can. But by the time that happens, penalty and interest have piled on.

Here’s an example. You already know that I’m a big fan of extensions. However, extensions buy you time to file, not time to pay—and that’s where people commonly get tripped up. Often, taxpayers will file a “zero extension” (claiming they owe no tax), which might feel harmless, but if you expect to owe and send nothing by April 15, the IRS treats that balance as late. Plus, the rules require a good-faith estimate of what you owe, not a shrug and a zero, so if you clearly understate it, you could risk the extension being treated as invalid. The smarter move? Take a reasonable guess (last year’s return is a great starting point) and pay what you can with the extension—even a partial payment helps cut down penalties and interest.

Here’s a more extreme example where a Kentucky business owner’s failure to pay employment taxes shows just how quickly civil tax issues can become criminal.

John Quintrell pleaded guilty to six counts of willfully failing to pay over payroll taxes from 2019 through 2025. The total? More than $22 million.

Prosecutors emphasized that Quintrell chose to pay other expenses rather than the IRS. But the money had never been his—it was money withheld from his employees to remit to the government. As a result, he was sentenced to 48 months in prison—and he still owes the tax, plus penalties and interest.

I was asked about this on social media and I noted that part of the problem is that folks don't always see it as fraud. Business owners who are stretched think it's just business to dip into accounts and assume they'll eventually fix it. It rarely works out that way. In fact, just before sentencing, the defense had this great line that I think explains a lot of this kind of behavior, saying “[h]e robbed Peter to pay Paul, and then it slowly got easier and easier to justify holding off on the tax payments for just a little longer.”

And something like this doesn’t have to turn criminal to cause you problems. The IRS can also impose the Trust Fund Recovery Penalty, which holds owners or decision-makers personally liable for the tax which wasn’t remitted—even if you have a legitimate business entity.

There are safeguards that you can put in place, like creating a separate payroll account that you only use for payroll. Even better? Hire a payroll tax company. It’s not expensive, and it can save you from making a much more expensive mistake.

What about the states? California is famously aggressive in its tax collection efforts, but does it ever take a page out of the IRS playbook and pursue criminal tax charges? Only rarely, as it turns out. Moreover, many of those criminal tax cases involve additional criminal charges beyond tax matters.

In another criminal tax case, Dr. Claribel Tan and her husband ran an Anchorage rheumatology clinic that prosecutors say turned the “buy-and-bill” system into a long-running fraud, generating over $12.5 million in false claims. Patients were billed for high-cost drugs—sometimes over $12,000 per dose—that the clinic often never purchased. Instead, patients received free samples, expired drugs, partial doses, or unknown substances.

Patients eventually grew suspicious—two even recorded visits which showed they received fewer injections than billed (sometimes, the doctor even hid the syringes). At the same time, the clinic billed for impossibly long visits, including instances that would have required Dr. Tan to have more than 20 hours of face-to-face time with patients in a single day.

While raking in millions, the Tans failed to file tax returns for some years and inflated expenses in others. Eventually, it caught up with them. Dr. Tan was sentenced to 6.5 years in prison, her husband received probation with home confinement, and authorities recovered millions through seizures, restitution, and civil settlements.

There are better—perfectly legal—ways to get tax-free money. We found 50 of them for you.

And on that happy note, I’m signing off. May your brackets be lucky—and your upsets intentional.

Kelly Phillips Erb (Senior Writer, Tax)

This is a published version of the Tax Breaks newsletter, you can sign-up to get Tax Breaks in your inbox here.

This week, a reader asks:

I’m a retired math teacher who earns money on the side by helping high school juniors boost their SAT math scores. My daughter says I’m supposed to report what I’m paid, but I didn’t receive a 1099. Do I have to report it, and if so, how?

Your daughter is correct. The IRS still requires you to report the income even if you didn’t receive Form 1099.

Taxpayers sometimes get hung up on the reporting thresholds. While payers typically issue Form 1099 once you earn at least $600, there is no minimum threshold for the recipient to report income. You must report all earnings, whether or not you receive a form.

Importantly, Form 1099 is just a reporting form—it doesn’t determine whether income is taxable. So even if you were paid in cash, through apps, or below the payer reporting threshold, it’s still taxable.

To report income from your side gig, include the earnings on Schedule C (Profit or Loss from Business) of your tax return. If you don’t have a Form 1099, rely on your own records—bank statements, payment app histories, and invoices—to figure your income. Make sure to include any costs, too, since you can deduct legitimate business expenses to lower your tax bill.

One quick note: without a form, you may be tempted to skip reporting. Don’t. If you’re over the threshold, it’s possible that the form simply got lost. If there’s any third-party reporting, like a Form 1099, the IRS can match it to your return, triggering a notice pretty quickly. You shouldn’t assume it will go unnoticed, and it usually costs more to fix later than to report it now (trust me).

Statistics, Charts, and Graphs

The IRS’s latest filing season data shows that filing and processing activities are slightly trailing last year but gradually catching up as the April 15 deadline approaches. The agency has received about 69.7 million individual returns, down 0.9% from last year, and processed 68.8 million, a 1.1% decline from 2025. Most of those tax returns were e-filed.

The average refund has risen to $3,623, and total refunds issued have climbed 12% to $182.6 billion, even though the number of refunds is only modestly higher.

Larger refunds are largely tied to mid-2025 tax law changes that expanded deductions and credits, combined with lagging withholding adjustments that led many taxpayers to overpay during the year. However, the increase—about $352 on average—falls within economist projections and short of political claims of $1,000 increases.

One more note: Most taxpayer refunds this year have been issued by direct deposit, reflecting a policy shift away from paper. But don’t worry, you can still pay by check.

Taxes From A To Z: K Is For Schedule K-1

A Schedule K-1 is a tax form used to report your share of income, deductions, credits, and other tax attributes from a pass-through entity (think partnership, S corporation, trust, or estate). The character of those items generally remains the same as they pass through to your individual return (for example, ordinary income stays ordinary income and capital gains remain capital gains).

Schedules K-1 can look intimidating because they often include multiple line items and codes that tie to different parts of a tax return. And, complicating matters for partnerships and S corporations, it reflects your distributive or tax share. The result is that you may owe tax on income you haven’t actually received in hand—a frequent shock for first-timers.

Since they’re tied to tax returns, Schedules K-1 are generally due March 15 for partnerships and S corporations, and April 15 for trusts and estates. If the entity files an extension, those deadlines typically move to September 15 (partnerships/S corps) and September 30* (trusts and estates). In practice, K-1s often arrive right up against those dates which is why individual taxpayers frequently end up filing extensions themselves.

*If you’re scratching your head on this one, by statute, Form 1041 receives only a five-and-a-half-month extension, not the full six months available for individual returns.

The Academy Awards were this month, and accounting always plays a part in the big day. Which of the following 2023 films that had a sharp tax focus won Best Picture that year?

(A) All Quiet on the Western Front

(B) Everything, Everywhere All at Once

(D) Triangle of Sadness

Find the answer at the bottom of this newsletter.

Positions And Guidance

The IRS reminds taxpayers who still need to file their 2025 federal tax returns that free options and resources are available on IRS.gov.

The IRS is extending weekly office hours at more than 200 Taxpayer Assistance Centers nationwide to provide taxpayers with additional time to receive in-person assistance during the filing season.

The American Institute of CPAs (AICPA) sent recommendations and asked for guidance from Treasury and the IRS regarding the paid family and medical leave credit. Currently, there is no guidance on the changes to the credit made by the One Big Beautiful Bill Act (OBBBA).

That’s the number of countries (Australia, Canada, Costa Rica, Israel, Japan, Norway, Peru, Singapore, Switzerland, and the United Kingdom) that have released a draft proposal to establish a committee on digital trade under the World Trade Organization (WTO) General Council. Among other things, the committee would “examine and monitor the increasingly complex and cross-cutting digital trade-related policy considerations, as well as the challenges stemming from ever-present digital divides.”

Tax Filings And Deadlines

📅 April 15, 2026. Deadline for individual tax returns to be filed with the IRS (or to request an extension).

Tax Conferences And Events

📅 March 30, 2026. Forbes Tax members only event, 3-4 p.m.

📅 May 7-9, 2026. American Bar Association Section of Taxation May Tax Meeting. Marriott Marquis, Washington, DC.

📅 June 3-6, 2026. Tax Retreat—The Anticonference. San Antonio, Texas.

📅 June 8-11, 2026. AICPA Engage. ARIA Resort & Casino, Las Vegas & live online.

The answer is (B) Everything Everywhere All at Once.

Everything Everywhere All at Once was nominated for 11 Academy Awards (and ended up winning 7, including Best Picture). The beautifully chaotic film kicks off with an IRS audit. Evelyn (played by Michelle Yeoh, who won the Oscar for Best Actress) and Waymond Wang (played by Ke Huy Quan, who won the Oscar for Best Supporting Actor) are business owners whose laundromat is under scrutiny for messy bookkeeping. Deirdre (played by Jamie Lee Curtis, who won the Oscar for Best Supporting Actress) is a line-level IRS examiner conducting the audit.

The links, clips, and tax takes readers loved (and a few you may have missed):

Taxpayers Are Asking AI For Help. Trusting It Is Another Story.

A New Confusing IRS Notice Could Mean A Long Wait For Your Tax Refund

You can find last week’s newsletter here.

We’d love your thoughts. What’s helpful? What’s confusing? What tax topics do you want more of? Email me directly—I read every message.

If you have a tax question, conference or tip for me, check out our guidelines and submit it here.

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