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Failure to File vs. Failure to Pay

Tax Penalties:  Failure to File vs. Failure to Pay

Every year in mid-April we all face the deadline to file our annual federal income tax returns.  A good majority of the populace files early on in the year, especially those who expect a sizeable refund from the IRS; however, there are a considerable number of people who wait until the last possible second to face this yearly responsibility.  For these individuals, it is crucial that they properly address their returns and have them postmarked no later than April 15th.

Even though we all go through difficult periods in life, and there are times when personal and professional commitments overwhelm us, not filing your annual tax return can leave you with some serious consequences that may extend way past monetary obligations.

April 15th:  The Deadline with Real Consequences

Failure to file simply means that you did not file your income tax return (or procure a six-month extension) by the April 15th deadline.  Under the IRS regulations in Section 6651(a)(1), you will be assessed a penalty of 5 percent of the unpaid taxes due for each month you are late.   This penalty has a 25 percent cap.

On the other hand, failure to pay applies to those who may have filed on time but owe taxes and did not pay on time.  In this case, the penalty, as outlined in Section 6651(a)(2), is 0.5 percent of the unpaid taxes per month.  The total penalty is once again capped at 25 percent.

In addition, it is important to understand that obtaining the six-month extension to file your return does not defer the period of time you have to pay your tax liability; therefore,

even if you either file on time or procure the extension, if you owe taxes and do not pay by April 15th, they will be considered late.  Subsequently, a failure to pay penalty will apply.

As you have probably concluded, both the failure to file and the failure to pay penalties can be slapped on the same tax return without much empathy from the IRS.

Other Predicaments

Besides incurring penalties, you could face other issues with not filing your return.  Namely, if you are due a refund, you can almost guarantee that your reimbursement will be significantly delayed, which is a disservice to you since you could have invested, saved, or spent that money sooner and as you see fit.

Moreover, depending on how many refunds you failed to file, you may be forfeiting that money to the United Stated government forever.  The IRS only allows a three year window for you to claim your tax refund, and after that the funds will be categorized as “unclaimed,” which essentially get turned over to the government.

The IRS may even take a course of action where if you have not filed your return an IRS agent will do it for you.  This substitute return will not include tax credits or deductions which you may be entitled to and will almost certainly have you paying more in taxes than you should be.

Finally, both filing your annual return and paying your taxes are responsibilities that the IRS does not take lightly.  Depending on how long you have been avoiding these duties and what the amount of taxes you owe are, the IRS may impose criminal charges against you which could land you in jail.  The take away here is no matter what else is going on in your life, it is better to file your annual income tax returns on time and pay the taxes you owe.

Dallo Law Group specializes in tax law and can help you if you owe the government money due to failure to file or failure to pay.  We understand that sometimes reasonable cause may have contributed to your circumstances, and we can diligently come to your aid with the IRS and can oftentimes even have penalties reduced or waived.  In addition, if you owe back taxes we can help negotiate a pay schedule for you that you can work with and will eventually get you current with the IRS.

Feel free to call us at 619-795-8000 to schedule a free consultation.