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Tax Penalties for Not Filing Tax Returns

Filing and paying one’s taxes can be momentarily painful. After all, there are very few people who can make a significant tax payment and not wonder about all of the other things they could have used the money to purchase or cover. And yet, millions of Americans file and pay their taxes on their own initiative each and every year not concerned with the tax penalties for not filing tax returns. The simple fact of the U.S. system of taxation is that it leans very heavily on voluntary compliance by taxpayers – at least at the outset.

An estimated 20 percent of the total tax gap is created by the failure to file and non-filers of taxes. There are generally two types of non-filers: the true non-filer who has never filed taxes and a stop-filer who filed taxes for a time but ceased his or her filing and payment of taxes. These individuals are likely to face the enforcement mechanisms of the U.S. Tax Code through contact and interactions with the IRS and Department of Justice (DOJ). Taxpayers who fail to satisfy their tax filing and payment obligations are, upon conviction, subject to harsh and significant criminal and civil penalties.

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Can I Face a Penalty for Failing to File a Tax Return?

In order for a taxpayer to be able to face a penalty for not filing a tax return, he or she must have an obligation to file. The truth is that most people will have an obligation to file taxes because the level of income one can earn before such a filing becomes mandatory is relatively slight.  Furthermore, even if a person does not have a formal obligation to file an income tax return, it is likely that he or she will want to do so regardless because the only way one can obtain any potential tax refund is by filing taxes.

However, in general, a taxpayer must file his or her taxes by the yearly filing deadline that typically falls on or about April 15. Taxpayers that do not make this filing by the deadline can face a failure-to-file penalty. Taxpayers who fail to file due to mistake or error can face a penalty of five percent of the outstanding tax bill for each month or part of a month where the taxes remain unfiled (which ramps up to 25% over just five months). For instance, if you fail to file your taxes until 49 days after the filing deadline you will pay a 15% penalty for the months of April, May, and June because the partial month is treated as a full month by the IRS.  (If the tax was $1,000 you will pay a $150 late filing penalty)

However, most taxpayers know that they have the option to file for a tax extension if they are not ready to file by the standard filing date. But, what many taxpayers fail to realize is that an automatic extension of time to file only effects the taxpayer’s filing obligation. Their duty to pay their tax due and owing by the filing date is not impacted in any way by the extension of time to file. Taxpayers who request an extension of time to file, must make an estimated tax payment if they believe they will owe money to the United States government and they wish to avoid paying additional fines and penalties. Taxpayers who make an estimated payment of at least 90 percent of the actual tax liability by the original due date are provided safe harbor from this penalty.

 Non-Filing and Non-Payment Penalties Explained

Taxpayers who fail to pay their taxes by the due date can face a failure to pay penalty of half of one percent of the unpaid taxes. Penalties are assessed for every month or part of a month where the taxes remain unpaid. In months where both a failure to pay and failure to file penalty can both be imposed, the five percent non-filing penalty will be reduced by the penalty for non-payment.
Taxpayers who have failed to file or pay their taxes may be able to escape liability for fines and penalties if he or she can show that the failure was due to reasonable cause. Failures which are the product of willful neglect, however, will not be waived. Furthermore, taxpayers who allegedly willfully evade or attempt to defeat taxes legally due and owing can face significantly harsher criminal tax penalties including tax evasion and interference with the administration of internal revenue laws.klasing-logo

What to Do When Facing Tax Penalties Due to Unfiled Taxes?

If you are facing penalties and tax complications due to unfiled taxes, contact our Los Angeles tax attorneys at the Tax Law Offices of David W. Klasing today. Our dedicated team of tax professionals are committed to mitigating the consequences faced by taxpayers due to unfiled taxes and other tax concerns. To schedule a reduced-rate tax consultation call our firm at 800-681-1295 or contact us online today.