Unfiled Tax Return Help
All U.S. citizens and residents are legally obligated to not only report their worldwide income, but also to pay taxes on any income regardless of the source or where it was earned. In fact, even if no U.S. tax payment would be due because of treaties or tax agreements with foreign jurisdictions, you still have a reporting requirement to which you must adhere. If you have failed to file a required tax return, you should do so as soon as possible. However, one should not blindly rush into a potentially costly tax scenario with the IRS. Working with an experienced CPA and tax attorney can help you reduce the amount you owe, minimize penalties you may have to pay, provide unfiled tax return help, prevent collateral issues from arising and potentially lead to a more favorable outcome.
While this question is seemingly simple, it is deceptively so. To being with, for a failure to file penalty to apply, you must have an obligation to file U.S. taxes. Whether you are required to file is dependent upon your filing status, the federal income tax withheld, and your gross income. Once it has been established that there was, indeed, an obligation to file U.S. taxes, you can determine if a failure to file penalty can apply.
Generally speaking a failure-to-file penalty can apply when a tax return is unfiled by its due date. While this scenario is simple enough, what happens when an individual files for a time extension? If an extension is applied for prior to the return’s due date, a failure-to-file penalty will not apply. However, if request an extension but you fail to pay at least 90 percent of your actual tax liability by the original due date, you may be subject to a failure-to-pay penalty. However if 90 percent or more of the liability is paid by the original due date and the outstanding balance is paid by the extended payment date, then no failure-to-pay penalty will apply. Similarly, if you are owed a tax refund, no failure-to-file penalty can apply however your return claiming a refund must be filed within 3 years of its due date or your refund will be forfeited.
One additional concerning aspect regarding a failure-to-file is that the statute of limitations does not begin to run for the assessment or collection of taxes until a return has been filed. This means that there is essentially no statute of limitations on tax claims if you have not filed.
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What is the penalty for a failure to file taxes?
The failure-to-file taxes is typically greater than the penalty for failure to pay taxes. The penalty for filing taxes late is typically 5 percent of the outstanding tax bill for each month or part of a month where the tax return is late. However, this penalty is not to exceed 25 percent of the unpaid taxes. Therefore, if you fail to file on time and file 48 days, you will be penalized for each month or part of month that the taxes were late. If your taxes were due on April 15, 2014 and you did not request an extension this means you would have filed on June 2nd. be liable for the penalties for 3 months since your tax filing was outstanding for all of the month of May and portions of the months of April and June. However, if your taxes are filed more than 60 days following the original or extended due date, the penalty is the lesser of $135 or 100 percent of your unpaid taxes.
Is there any way to avoid paying the failure-to-file or failure-to-pay penalties?
You are liable for failure-to-file unless you have a reasonable cause for your omission. However willful neglect is not an excuse for your failure to pay taxes. However the IRS’ interpretation of what it considers to be willful is surprising to many people. The IRS defines willful action as an action that is a voluntary intentional violation of a known legal duty. Thus whether conduct is willful is dependent upon a subjective mental state. This mental state can, and often is, shown through circumstantial evidence not limited to conduct, your financial transactions, your interactions with your bank, and many other statements and other behaviors. Put mildly, there is room for misinterpretation of your actions, inaction or statements. When mistakes or failure are repeated, it may become more difficult to explain them away despite the fact that they may have all arose from the same misunderstanding. As your financial holding become more numerous and complex, such as in the case of foreign assets, the IRS believes that you should be reading government documents to discover you tax obligations. Thus, as you holdings increase in complexity and amounts, it can become more difficult to avoid a finding of willfulness or even deliberate disregard.
However, working with an experienced lawyer can provide unfiled tax return help. We can help you explain any oversights and may result in a more favorable outcome than attempting to handle the IRS alone.