Final answer:
The statement that interest accrues monthly according to the IRS is true. Interest on unpaid tax is compounded daily and charged monthly on the unpaid balance, meaning debt and interest grow over time if not addressed.
Step-by-step explanation:
According to the IRS, it is true that interest accrues monthly. The IRS calculates interest on unpaid tax from the due date of the return until the date of payment in full. Interest is compounded daily and charged monthly on the unpaid balance. This means that if you have a tax liability and it's not paid by the due date, interest begins to accumulate on the outstanding amount, and this will continue every month until the amount is fully paid.
For example, if you owe $10,000 in taxes and don't pay by the deadline, interest starts accruing on that $10,000. If the interest rate is 5% per year, the monthly interest would be roughly 0.41667% of your unpaid taxes. Consequently, each month, you'd accrue additional interest on the new balance, which includes the previous month's unpaid tax and interest. As a result, as debt increases, the amount of interest also rises, leading to a growing deficit if all other government spending remains constant.