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The IRS gives some background on this situation.  It's a bit sugarcoated, in my opinion. 

There are real penalties, both criminal and civil for failure to file.  

Criminal Failure to File:

Internal Revenue Code Section 7203 [26 USC §7203]:

SECTION 7203. WILLFUL FAILURE TO FILE RETURN, SUPPLY INFORMATION,

OR PAY TAX

 Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting "felony" for "misdemeanor" and "5 years" for "1year".

Recently, a Dallas attorney pleaded guilty to failing to file income tax returns, and is awaiting sentencing in September.  She could be sentenced to two years in jail and $200,000 in fines.  Imagine, the Justice Department lawyers went after another lawyer!  Is nothing sacred anymore?  

By the way, you'll notice that the sentence and penalty is double the amount in the law.  Why is that?  The jail and fines are for each year she failed to file!

She didn't file for TWO years, so the jail time and fines are likewise doubled!

If you don't warrant going to jail, there are always heavy fines to pay: 

Civil Failure to file

SECTION 6651. FAILURE TO FILE TAX RETURN OR TO PAY TAX

 (a) ADDITION TO THE TAX

In case of failure--

(1) to file any return required under authority of subchapter A of chapter 61 (other than part III thereof), subchapter A of chapter 51 (relating to distilled spirits, wines, and beer), or of subchapter A of chapter 52 (relating to tobacco, cigars, cigarettes, and cigarette papers and tubes), or of subchapter A of chapter 53 (relating to machine guns and certain other firearms), on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate;

But if this is a "fraudulent" failure to file:

(f) INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE

If any failure to file any return is fraudulent, paragraph (1) of subsection (a) shall be applied--

(1) by substituting "15 percent" for "5 percent" each place it appears, and

(2) by substituting "75 percent" for "25 percent".