By and large, the most common penalties the IRS issues are fines and interest. If you fail to file a tax return and aren’t attempting to defraud the U.S. government, you are unlikely to face criminal charges for tax evasion, but failure to file a tax return can be a misdemeanor offense. That said, you will probably risk incurring the aforementioned penalties and perhaps a few others, and in some cases, a jail sentence can be imposed.
In this article, we’ll discuss some of the potential consequences of failing to file a tax return on time and what you can do to get out of this situation. If you feel you need additional guidance, feel free to reach out to our attorney at Damiens Law Firm, PLLC, for personalized assistance.
What are the civil and criminal consequences of non-filed tax returns?
If you fail to file your tax return on time, the IRS can impose a penalty equivalent to 5% of your unpaid tax bill for each month, or part of a month, that your return is late. According to the IRS, however, this penalty won’t exceed 25% of your unpaid taxes. You will, however, incur a minimum penalty of $435 if your return is more than 60 days overdue.
You can also incur the IRS’s failure-to-pay penalty, which is calculated as 0.5% of your unpaid balance each month, also up to 25% of your unpaid tax bill. Additionally, on top of your unpaid balance, failure-to-file, and failure-to-pay penalties, you will incur interest on your debt.
What is a federal tax lien?
A federal tax lien is a warning that the U.S. government intends to seize your property – both real and personal – as payment for unpaid taxes. The seizure of your property for payment is known as a tax levy.
Once the IRS places a levy against your home, vehicles, or other property, it stays in place. There are a few ways to remove it, though. The first is to pay off your remaining tax balance in full. Another way is to request an installment agreement to pay it off over time or to make an offer in compromise to pay off your tax bill for less than its full worth.
The latter two options, however, depend on filing all previously unfiled tax returns with the IRS.
What is a substitute return?
A Substitute Return is a tax return the IRS prepares for you in your unfiled return’s absence. It’s generally best to avoid getting a Substitute Return from the IRS because it probably won’t reflect all of the credits and exemptions applicable to you.
To avoid a Substitute Return, file your own tax return with the IRS. Even if the IRS files a Substitute Return, filing your own tax return can give you the chance to claim tax credits or exemptions the IRS didn’t take into account.
How long can you go without filing a tax return?
If you wish to claim your tax refund, you have three years from that year’s tax return due date to file it.
For each year’s portion of your unpaid tax bill, the IRS can pursue collection for up to 10 years. In other words, if it’s been more than 10 years since you incurred tax debt and haven’t paid it off, the IRS will back off – but don’t expect to wait it out to clear your tax debt.
The IRS is thorough and meticulous in many ways, including pursuing collection for unpaid taxes. If you attempt to wait out the statute of limitations, the IRS will likely subject you to wage garnishment, tax liens, tax levies, and other means of collection long before the statute of limitations runs out.
How do I file a missing tax return?
If you want to file a past-due tax return, you can do so by completing a tax return the same way as you would any other. If you need information from previous returns you’ve lost or information about your income, you can request this from the IRS.
What is a Form 843 & why is it important?
Form 843 is a request for abatement of penalties, interest, fees, and even certain taxes. As discussed above, you can expect to face certain penalties and fees associated with filing a late tax return. You do, however, have a chance to remove some of these costly penalties from your tax bill by completing Form 843.
Line 5a of Form 843 allows filers to select one of three reasons for abatement:
- Interest was assessed as a result of IRS errors or delays.
- A penalty or addition to tax was the result of erroneous written advice from the IRS.
- Reasonable cause or other reason allowed under the law (other than erroneous written advice) can be shown for not assessing a penalty or addition to tax.
In most situations where penalties and fees associated with a late filing can be abated, the third option would most likely apply. For specific guidance on this issue, however, always consult with a professional tax attorney.
Contact Damiens Law Firm, PLLC for help
If you expect to file a late tax return or plan to file a return that’s already overdue, get professional guidance from Damiens Law Firm, PLLC. Our tax attorney has many years of experience assisting clients with a variety of personal and business-related tax problems. No matter what you’re up against, we can help.