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Failure to File Penalties and Can They Be Reduced?

Failing to file taxes, and more specifically, owing taxes for the year in which the return has yet to be filed, often leads to a number of different penalties assessed by the IRS. The Federal Government of the United States often grants both individuals and businesses a valid extension when requested, which allows them more time to file a tax return. However, when an extension is not requested, or one is requested, yet a tax return and moneys due are not submitted by the new deadline, serious problems can arise that are best dealt with by an accounting or legal professional.

What Constitutes a Failure to File?

To put it simply, a failure to file occurs when a tax return is not submitted to the IRS by the deadline set forth by them every year. This is usually April 15th, but it can be extended for six months. Companies and individuals can both request an IRS extension, which pushes back that filing deadline. While this gives them more time to compile documentation and pertinent return information. In some cases, that deadline is also missed, that becomes what is known as a failure to file, and penalties are assessed by the IRS according to the guidelines that they have put into place.

What Are the Penalties for Failure to File?

The IRS assesses a number of different penalties for those who fail to file tax returns on time or according to the set schedule. Some of these penalties are determined by the amount owed, while others are based on a standard schedule of charges.

Keep in mind that there are two different types of penalties that those who fail to file may have to pay. They are defined as:

  • Failure to Pay – This is a failure to pay the amount owed to the IRS on time. When a tax return is filed, it should be accompanied by a check or authorized payment plan for any amount due. When this does not occur, a failure to pay fine is levied.

  • Failure to File – This is a fine that is levied on taxable entities that occurs when a tax return is not filed on time. The penalties for a failure to file are often larger than those for a failure to pay, simply because the IRS wants to ensure that everyone files on time every year. They often suspect that those who do not do so may be hiding assets and trying to avoid paying taxes, regardless of the actual excuse for failing to file on time.

Both of these penalties may be assessed, depending on the company or person. If someone both fails to file and fails to pay, fees under both forms of penalties will be levied. The total penalty is determined by the combined factors.

The failure to file penalty amount is based on how late the tax return is submitted. Fees start at 5% of the taxes owed by the entity for every month (or partial month, depending on the circumstances) that the return is late. This time period starts the day after the return becomes late, so April 16th or whatever date immediately follows any filing extension received.

For example, if a company submits their return to the IRS one month or partial month after the filing deadline, the fee will be 5% of the amount that they owe. If it goes over that time period into the next month, an additional 5% is added on, for a total of 10%. This progresses and adds up quickly based on the taxes owed, but it will not exceed 25% of the amount due. With that said, according to the IRS, you may be assessed a fine of $135 or 100% of the amount owed if you file more than 60 days late. This is contradictory to the 5% fee for each month (or partial month) late and is determined on a case by case basis.

Is a Reduction in Penalties Possible?

If you work with a tax professional who has extensive experience in dealing with the IRS, you may be able to work out a payment plan with them that includes a penalty reduction. It depends on the circumstances and how well those circumstances are communicated to the decision maker at the IRS. A reduction is not guaranteed, the odds of working out a deal that includes a lower amount of taxes owed is better if you work with a professional tax firm, such as Enterprise Consultants Group, rather than reach out to the IRS on your own. There are many workarounds that you are unaware of, but your professional tax expert will know about these efficiencies and may get the IRS to agree to a mutually beneficial plan.

Will the IRS Listen to Me?

The biggest question that many have is “will the IRS listen to me?” Regardless of the circumstances surrounding the failure to file, the IRS only wants two things: the tax return and any money owed. If you have a valid reason for being unable to file by the deadlines, for example, you do not have all of your bank account information compiled or are waiting for a document from your business’ accountant, then it is always best to request an extension. This pushes back your filing deadline and prevents you from being subject to penalties, that is, as long as you file by the appointed new deadline. If you cannot meet this new deadline, then requesting an additional extension is always a possibility.

If, for some reason, you did not request an extension and failed to file and pay your taxes, then it is crucial that you:

  • File as soon as possible – Filing as soon as possible prevents those penalties from compounding or getting larger. As stated above, the percentage goes up for each additional month that the return is late, until it hits the maximum allowed.

  • Reach out to a professional immediately – A tax professional with experience in IRS dealings will make a more compelling case to the IRS on your behalf and work with you to get all your documentation and payments properly submitted in a timely manner.

How to Seek Professional Help

It is important to remember that dealing with the IRS on your own is never a wise choice. Whether you own a business that is late filing taxes or are an individual who has not filed by the deadline (or requested an extension), the IRS will not hesitate to assess the full amount of penalties available to them. This is standard procedure. The government prefers it when people and companies submit their returns and tax payments on time. Since penalty amounts vary based on how late the tax return and its accompanying payments (amounts due) are, an expert can help assess the situation, prepare the late return, and work with the IRS to come to a mutually agreed upon compensation conclusion.

When you attempt to contact the IRS on your own, it is important to note that you are one taxpayer reaching out to an exceptionally large, government organization. You are already in the wrong when your tax return and tax payments are past due. While they want you to file and pay your taxes, they will not hesitate to levy according to the laws and statutes in place upon you. It’s wise to seek professional tax representation in order to ensure that you do not make any additional mistakes or missteps as far as the IRS is concerned.

If you have tax-related questions about your failure to file taxes or past due tax payments, the tax advisors at the Enterprise Consultants Group can answer your questions, discuss your rights, and provide actionable options. Simply contact us online or at (800) 575-9284 today to schedule a consultation to see how we can help you.

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