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There are many reasons why a taxpayer may fail to file a tax return. Some taxpayers simply procrastinate. Others may be going through a particularly tough time in their lives. And then there are others who willfully fail to file a tax return. Whatever the reason may be, not filing your tax return will not result in the debt being erased from existence. In fact, the opposite effect might come true. Non-filing of tax returns can lead to increased tax liability, thanks to added penalties and interest.
If you’ve missed filing a particular tax return, there’s no need to panic immediately. There are ways to solve this problem. In particular, you can consult a tax lawyer for advice regarding your issue for a more in-depth assessment. In the meantime, here are some fast facts about this topic.
Failure to File and Failure to Pay
Failure to file a tax return and failure to pay your taxes are different from each other, although these terms are often confused and mixed up. As a general rule, the taxpayer fails to file when they miss the deadline for filing taxes. On the other hand, a taxpayer is said to have failed to pay when they miss the payment deadline for paying taxes.
The distinction is important because the IRS can assess separate penalties for each. If you fail to file on time, and also file to pay on time, then the IRS can assess penalties for each failure. This can lead to a noticeable increase in your tax debt. Failure to file is treated more harshly than failure to pay. Common solutions when a taxpayer fails to pay is to work out an offer in compromise with the IRS, or a payment plan.
Being assessed a penalty is one of the most common outcomes when you don’t file a tax return. The taxpayer must have had an obligation to file the tax return, otherwise, if there is no obligation to file, there is no basis for a penalty. Financial penalties, as well as criminal penalties, are possible when it comes to late filing.
For late filing, the penalty is usually 5% of your unpaid taxes, for each month (or partial month) that had a delinquent return. For this penalty, there is a ceiling which is 25%. However, the penalty may exceed the ceiling if you are delinquent by more than 60 days. In this case, the penalty will be either 100% of your unpaid tax or a flat fee of $135 dollars. Whichever is smaller of these two will be the penalty assessed.
One of the most commonly asked questions is whether or not it’s a crime to not file your tax returns. The answer to this is yes, it can be a crime when it’s done willfully. Criminal tax charges may be filed if it is determined that the neglect to file tax returns was due to willful neglect. The taxpayer must be aware of his actions. In other words, if the failure to file the return is because of a mistake or because of simple negligence, then it’s not considered a crime.
So what are the possible penalties in case of criminal tax charges for non-filing?
The taxpayer may be sentenced to up to a year in jail. In addition to this, the taxpayer may also be assessed a fine of not more than $25,000, together with costs of prosecution. Both of these may be imposed on a guilty taxpayer.
If ever you’re facing the possibility of being prosecuted for failure to file returns, don’t hesitate to reach out to an advocate who can help you. A tax lawyer will be able to advise you on how to handle your situation.