Taxpayers Can Face Steep Penalties for Not Filing Tax Returns
As the tax deadline has passed, if you have not filed your taxes, you should probably read on. Whatever the case may be, not filing your taxes has severe consequences. Even if you have not filed for a few years, eventually, the IRS will come after you.
Tax evaders often face large penalties, fines and imprisonment and civil penalties. Regardless of what tax evaders argue, filing taxes isn’t a voluntary task. It’s required. If you make over a certain amount of money each year, you must pay a tax on that income. According to the Internal Revenue Code, this requirement is set in the first section, which imposes a tax on the taxable income of individuals, estates and trusts.
Failing to file a tax return should never be an option. And, it must be on time, to avoid penalties. Taxes are due April 15th. The day you mail is the day you file.
But, what if you don’t file?
What happens is the IRS may file what is known as a substitute return for you. However, the IRS will not be looking to save you any money, of course. A substitute return would not include any of the standard deductions your accountant normally would in your return. So, you would end up with a higher tax liability than if you had just filed.
Some do not file because they don’t have the money to pay the tax. This is a big mistake. You will end up paying a penalty on the amount you owe at 5% per month. The total penalty can even add up to almost half of the tax owed.
If the IRS finds that you owe them money, they will send you a bill called a Notice of Tax Due and Demand for Payment. This includes the taxes you owe—plus interest and penalties. You should pay your tax bill as soon as possible, because of the interest and penalties that continue to accrue. The IRS accepts all kinds of payment: credit card, electronic funds transfer, check, money order or cash.
The penalties go on for failing to file, filing incorrectly, etc. If any part of an understatement of a taxpayer’s liability is due to an “unrealistic position” taken on his return, any income tax return preparer who knew of this position is subject to a $250 penalty.
If the understatement was reckless or intentional, the penalty is $1,000 per occurrence. The preparer’s firm or entity is also subject to the penalty—if it knew, or should have known of the conduct-giving rise to the penalty.
A tax preparer that is referred to the IRS’s Office of Professional Responsibility may be subject to suspension, disbarment, or censure. Other penalties that can be imposed include:
Failure by an income tax preparer to sign a required return, failure by an income tax return preparer to furnish a required taxpayer identification number, failure by an income tax return preparer to furnish a copy of the tax return to the taxpayer, failure by an income tax return preparer to retain a completed copy of the return or a record of the taxpayer’s name, identification number, taxable year, and type of return prepared; failure by an income tax return preparer to comply with the due diligence requirements with respect to determining a taxpayer’s eligibility for, or amount of, the earned income credit; aiding and abetting the understatement of a tax liability, and lastly, disclosing or using any tax return information other than to prepare or assist in preparing the taxpayer’s return.
With all of these penalties comes greater risk of the IRS coming after you. As in, a referral to the IRS Office or Professional Responsibility with the threat of suspension, disbarment or large fines. The IRS probably will contact current and former clients of yours.
This will have a large negative impact on the preparer with the knowledge by clients that the IRS is investigating the preparer. This just proves another reason why a tax return preparer who learns of an investigation should retain a tax lawyer to represent him, immediately. Keep in mind, the IRS can also seek criminal penalties for such conduct.
If the IRS is considering a penalty against you, you should seek assistance from an experienced tax attorney as early as possible. Contact us today!