Articles Posted in Tax Debt

What Are the Penalties for Failing to File IRS Tax Returns
Timely filing of IRS tax returns is always preferable to missing deadlines and facing tax return penalties for doing so. Failing to file tax returns leaves you liable for some potentially expensive penalties. Depending on how late, the amount of taxes involved and how many years of returns are delinquent, the consequences can be quite severe.

Here is a look at the penalties for failing to file tax returns:

  • Failure-to-file penalties begin after the April 15 deadline and accrue at a rate of 5% of the amount owed, per month or part of a month up to a maximum of 25%.


When faced with tax problems, managing the debt without destroying your budget can be daunting. Depending on how much you owe, it could take years to get out from under the financial burden. The longer it takes, the more penalties you face, including interest and potential tax liens or levied assets.

Fortunately, the IRS offers several programs to ease that burden and in some cases reduce the total amount you will need to repay. These programs have been augmented to provide greater tax relief as part of an IRS policy change known as the Fresh Start Program.

Offers in Compromise (OIC) 

Can I Go to Jail for Failure to File Tax Returns
Failure to file tax returns can be classified as tax fraud by the IRS. While that term does manage to make it sound much more serious, failure to file by itself doesn’t often result in jail time.  Still it’s not impossible—just ask Wesley Snipes! Usually though, the government wants taxpayers earning money so it can collect those taxes. Sending non-payers to prison isn’t going to facilitate that.

The federal or California state government would have to be convinced that your failure to file taxes was intentional before considering something as severe as a jail term. Failure to file over many years, coupled with other bad conduct such as hiding assets, for example, could be subject to criminal penalties including imprisonment and/or fines. In lesser cases, you are more likely going to be liable for back taxes and civil penalties, plus interest.

Failure to File Tax Returns and Failure to Pay

Can Back Taxes and Penalties Be Negotiated
Back taxes can be financially crippling both to you and your business. If your tax debt is more than you can afford to pay back in a lump sum, or if you think there may be some error on the part of the government in assessing how much you owe, you do have some options at your disposal.

Offer in Compromise to Reduce Back Taxes

One such option is known as the Offer in Compromise, which is an application to reduce your tax liability to less than the full amount you owe, under certain circumstances. Acceptance of an OIC is at the discretion of the IRS and is based on a combination of factors including your ability to pay, income, assets and total expenses. To be eligible to submit an Offer in Compromise, you must be current on all your tax filings and not be in a bankruptcy proceeding.

Protecting Your Assets from IRS Seizure
Owing the IRS money can result in many consequences, including losing assets to an IRS seizure. No one wants to lose their home, vehicle, bank accounts, or other assets due to a dispute regarding unpaid back taxes. It is important to understand how to protect your assets from IRS seizure if you are struggling with back tax debt. Here are some tips that we can provide from our experience as tax attorneys regarding asset seizure.

Understand the IRS Seizure Process

The IRS will not seize your property overnight. You will be warned and have the opportunity to appeal the decision or pay the back taxes due before your assets are levied. You will receive a “Notice of Demand for Payment” as the first step of the asset seizure process. If you have received this notice and do not pay the amount requested in the time frame given, the IRS will move forward in trying to obtain your assets for payment.

Retirement Jar
The Taxpayer Advocate is a tireless champion of taxpayer rights. The Taxpayer Advocate is required by law to issue reports to Congress. Her most recent mid-year report was recently released. One of her issues was that the IRS continues to levy on retirement accounts even though the IRS guidance to its revenue officers is “insufficient to protect taxpayer rights.” As her report points out, the IRS has identified three steps which MUST be taken before a Notice of Intent to Levy can be issued on a retirement account such as IRA Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA, and Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans). These steps are:

  1. Determine what property (retirement assets and non-retirement assets) is available to collect the liability;
  2. Determine whether the taxpayer’s conduct has been flagrant; and

Depressed businessman sitting under falling papers
Bankruptcy Appellate Panel Finds in Favor of the Taxpayer in Late-Filed Taxes Discharge Question

In the previous blog post we set forth the facts in a bankruptcy proceeding where the IRS argued that taxes filed even one day past assessment would result in the nondischargeability of the debt in bankruptcy. In this post we will examine the Bankruptcy Appellate Panel’s (BAP) analysis and issued guidance in the proceeding In re Kevin Wayne and Susan Martin, EC-14-1180-KuKiTa (9th Cir. BAP 2015).

Bankruptcy Court Found the Tax Debts Were Dischargeable

Close up of a yellow pencil erasing the word, 'Bankruptcy.' Isolated on white.
The Internal Revenue Code and the Bankruptcy Code are each complex laws, but when they intersect things can get quite confusing, and seemingly inconsequential facts can have serious legal consequences. In a recent unpublished opinion, In re Kevin Wayne and Susan Martin, EC-14-1180-KuKiTa (9th Cir. BAP 2015), the Bankruptcy Appellate Panel (BAP) provided some guidance as to the effect the non-filing of a tax return or the filing of a tax return post-assessment can have on one’s eligibility for discharge through bankruptcy. While the court did not provide a bright-line rule, it did provide an explanation as to the applicable standards regarding what constitutes a “return” for purposes of a bankruptcy discharge. Taxpayers and their bankruptcy and tax attorneys can consider and apply the announced standard to gain a better insight into the impact their non-filing may have on contemplated bankruptcy proceedings. Of course the story may not be over, and the IRS may still appeal the BAP ruling.

Providing further clarity and a rejection of the harsh consequences imposed by a literalist approach and the IRS-advocated positions, the court also addressed a number of other arguments regarding the proper definition of a “return” and the analytical framework when determining a taxpayer’s eligibility for a bankruptcy discharge. In doing so the BAP rejected an approach that had gained favor in other courts. In doing so the BAP refused to follow other courts which had interpreted tax and bankruptcy law in a way which would make a tax debt nondischargeable whenever a tax return is filed even one day late. It also rejected the IRS position that once the IRS makes an assessment in the absence of a filed tax return that tax debt is non-dischargeable even though the taxpayer subsequently files a tax return.

The Taxpayers Failed to File Their Tax Returns for Multiple Tax Years

USA passport, compass and foreign coins sit on a map of Europe for an international travel concept.
One’s failure to understand the obligations and duties one holds under the U.S. Tax Code can always result in significant additional penalties and interest on any unsatisfied tax debt. Aside from these serious penalties, a proposed provision contained within the pending 2015 highway & transit funding bill, aka the Surface Transportation Reauthorization and Reform Act of 2015, would introduce new consequence on top of fines and penalties for certain taxpayers with “seriously delinquent taxes.” This new measure would permit the IRS to submit a list of individuals who are subject to non-renewal, cancelation, and restrictions on their U.S. passports.

The Bill has been passed by both the House, and the Senate, but there are still impediments to its final implantation. A provision in the bill authorizes the U.S. government to revoke, deny, or limit one’s U.S. passport if the person owes more than $50,000 in “seriously delinquent tax debt.” This $50,000 threshold includes all penalties and interest that may be added on due to a taxpayer’s failure to satisfy a tax debt that is due and owing. However, the tax enforcement provisions regarding the cancelation of one’s passport can only be utilized after the IRS has filed a lien or a levy against the taxpayer. The Bill provides that if the provision passes, it will go into effect on the first day of 2016.

Many groups are likely to be effected by these harsh potential new penalties. However, few groups are likely to be as affected as the 8 million strong American expatriates already grappling with FATCA and other offshore account compliance initiatives. Facing FATCA or other tax penalties and failing to address the matter before January 1st could lead to dire circumstances for expats due to potential passport cancelation. While the $50,000 threshold seems like it would be difficult to reach, penalties and interest can add up much more quickly than the average taxpayer would imagine.

Small Business
Small business owners are the dedicated and hardworking individuals that make our economy strong and our country great. On the whole, many small business owners lack the resources or processes and procedures to ensure that they and their company remains fully compliant with all tax obligations. Unfortunately for owners of small businesses, the IRS is aware of this fact and pursues small businesses and small business owners for perceived tax obligation failures aggressively.

The best advice for small business owners is to be particularly meticulous regarding one’s tax filings and, if applicable, foreign account disclosures under FBAR and FATCA. However, the acts by some small business owners are so egregious as to necessitate tax enforcement actions that can result in enormous fines and a potential federal prison sentence.

From Respected Communications Industry CEO to Tax Fraud Felon