Cautionary Tale: Failing to File a Tax Return

As tax time begins to once again loom over us, there are those who have already filed their yearly tax returns and there are others who are still in the process of gathering up their paperwork to do so in the next few weeks. Almost everyone knows and expects this yearly responsibility some with trepidation and others with delight in anticipation of a refund and are prepared to complete the task well in advance of this year’s deadline: Wednesday, April 15, 2015.

Aside from the early filers and those who wait until the last moment to get their paperwork in, there are a group of people who completely disregard the requirement of properly reporting their income and therefore just simply do not file a tax return. In recent years, some high profile individuals who have evaded their tax duties include Nicholas Cage, who received a $6 million lien for taxes owed, penalties, and interest; and Wesley Snipes, who was convicted in court for failure to file back tax returns and was slapped with a 3 year jail sentence. In not so recent years, celebrities such as Judy Garland, Sophia Loren, and Richard Pryor, among others, were all in hot water as well due to tax evasion.

The bottom line: no one gets a free pass when it comes to filing a tax return. If you cheat the taxman, the consequences could reach beyond the money in your pocket.

Consequences of Failing to File.

According to Section 6651(a)(1) in the IRS code, you must file your federal tax return by the April 15th deadline or file for a six-month extension by that date. If you fail to do so, for each month you are late, you will receive a 5% penalty of the net tax liability due up to a 25% cap.

Of course, it is easy to see that failing to file by the deadline when you owe money to the government could bring you robust penalties; however, if you are due a refund, chances are there will be a great delay before you see that money. Hence, do not count on getting timely use as far as investments, paying off loans/credit cards, and personal savings had you gotten a hold of that money sooner.

Moreover, if you are owed money by the government and you do breach your obligation of filing a return, you essentially only have three years from that tax year to claim the refund by getting your paperwork in. Once the time lapses, you effectively have donated the funds to Uncle Sam and will never be able to get them back, whether you finally decide to file or not.

Another consequence of avoiding your annual return is that the IRS may eventually file a return on your behalf. First, the agents will attempt to reach you; however, if they have no luck, they will take your reported income and file a return. Rest assured, such a filing will not be to your favor, because it will include hefty penalties and leave out your owed credits and/or deductions. In the end, besides being late, you will likely be overpaying on the amount you owe.

Finally, by far the worst outcomes of not filing a timely tax return are the most aggressive ones: wage garnishments, seizure of assets, and even jail sentencing. At this point, you will probably need to handle the situation with a tax attorney to represent you and bring the whole situation under proper control.

Failing to file a tax return can end up being a serious matter, depending on the amount owed and the time lengths of missed obligations. In some cases as in reasonable cause, getting everything right may be an easy road for you. Dallo Law Group can help you navigate through this area to see what your specific alternatives could be. Because it is best to file your returns, even if they happen to be late, you should seek our legal advice in order to ensure you only pay what you are obliged to with minimal penalties while avoiding asset seizure and jail sentencing.