If you are unable to pay all your taxes, the IRS says to file a tax return anyway, which will reduce the penalties you owe, and pay what you can. Then work with the IRS to set up a payment plan (or the IRS has an "Online Payment Agreement Application"). The penalty for not filing a return is steep: 5 percent of the amount you owe for each month, up to a maximum of 25 percent. By contrast, the penalty for paying late isn't as onerous.