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Failure to pay taxes? IRS consequences of filing late or never filing at all
To often, taxpayers owe taxes at the end of the year and decide not to file. The rationale is that, “if I cannot pay the tax debt owed, what’s the point in filing.” Wrong. This way of thinking can be costly. If you are late filing a tax return, you will face certain penalties. You should always make a timely IRS filing, even if you cannot pay the amount of tax you owe.
Avoiding penalties from late tax return filings
There are two types of penalties that may apply to a late filing: failure-to-file penalty and failure-to-pay. Generally, the failure-to-file penalty can be more costly than the failure-to-pay, so if possible, file timely and pay down as much of your tax debt that you can if you cannot pay in full. Once your tax return is processed, call the IRS to resolve the tax debt through the many resolution options, such as a payment plan or offer in compromise. Do not ignore the IRS once they try to collect on the unpaid tax debt. This may result in a wage garnishment, bank levy and tax lien applied against you.
What are failure to pay penalties for failure to pay taxes?
For the IRS document Failure-to-file penalty click here. If you are late filing, this penalty amounts to approximately 5 percent of your unpaid taxes for each month that it is late. It may not exceed 25 percent of your unpaid taxes. f you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
Failure to pay taxes, what are the penalties?
Failure-to-pay penalty. If you are late paying the tax debt due for any given tax year, the IRS will charge you a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month after the deadline that the taxes are unpaid. This penalty can be as much as 25 percent of your unpaid taxes.
Exceptions to filing penalties
There are many excuses that taxpayers may come up with to avoid these penalties. Unfortunately, it is often too late to argue them with the IRS due to the passage of time. It is quite common for a taxpayer to fail to file for one year and continue to not do so for many years thereafter. The excuses will not be as welcomed later on down the line after that third or fourth unfiled tax return.
That is why it is so important to address tax issues as soon as you know about them and arm yourself with the consequences of an untimely filing, missing a filing and/or not paying off your tax debts.
Also, it is advantageous to make yourself aware of some reasonable explanations or exceptions to late filing penalties before you call in to the IRS to argue why they should be removed for filing late or not paying on time. IRS penalty abatement relief is generally granted when a taxpayer exercised “ordinary business care and prudence” but still failed to comply.
Reasonable excuses for removal of penalties: penalty abatement
• Taxpayer suffered with health problems where their illness made them suffer with memory loss and concentration problems.
• Taxpayer suffered from the death of a close family member
• Taxpayer’s house was burglarized where all documents needed to prepare returns were stolen.
Unreasonable excuses for removal of penalties
• Taxpayer’s CPA or tax return preparer failed to timely file the tax return. This excuse is not allowed because a taxpayer always has the ultimate burden in ensuring the filing of their tax returns.
• Taxpayer ignorance. For example, a taxpayer cannot claim that they did not know that winnings from gambling is not considered income or that they were unsure about when their tax return was due.
• Taxpayers religious beliefs are not an excuse for avoiding income from being taxable.
First time penalty abatement waiver
There is another option to remove penalties that most taxpayers do not know about, which requires no excuse: the first-time penalty abatement waiver.
You may qualify if:
• You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
• You filed all currently required returns or filed an extension of time to file.
• You have paid, or arranged to pay, any tax due.
You generally may only use this for the first year of the offense, unless you have a reasonable excuse for not filing or paying on time for a second year and so on for failure to pay taxes.
If you cannot take on the IRS alone, consider hiring a San Diego tax attorney to assist you with the entire process. A tax lawyer can assist you with the many issues of why you were not able to timely file and or pay on time and ensure you receive the best chance at penalty abatement with the IRS. Please call for a no-cost tax attorney consultation at (619) 639-3336.
This blog post is not intended as legal advice and should be considered general information only.