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%.
• Failure–to-pay penalties are in the range of .5 – 1% of the amount owed, per month. In any month when both the failure-to-file and failure-to-pay penalty apply, the failure to pay penalty will not be assessed.
• Refund Forfeiture – Failing to file tax returns can forfeit your right to claim your refund. If you don’t file within three years of the due date of the tax return for the tax year in which you are owed the refund, your money will go to the U.S. Treasury, although some exceptions may apply
• Jail Time– Failure to file a tax return on time is a crime punishable by up to a year in jail.  While prosecutions are infrequent they do occur.

You may request an extension of time to file to avoid paying late tax return penalties, though you will still be subject to the failure-to-pay penalty if the full amount is not paid by the original due date. If you file your return more than 60 days past the due date or the extended due date, the penalty is a minimum of 100% of the tax amount owed or $135, whichever is smaller. Both failure-to-file and failure-to-pay penalties can be abated provided you can show reasonable cause for being late.

An ancillary “penalty” for failing to file tax returns is that any funds due you are unavailable for use or investment unless and until the tax returns are filed. You have essentially given the federal government an interest-free loan of your unclaimed refund. There is an asymmetry present in how the IRS pays interest because while they will penalize you and charge you interest for failing to pay them on time, they will not pay you interest for any time period during which the return is late.

Be sure that your tax returns are filed on time and completely, to avoid costly interest and penalties. If for some reason your returns are filed late, or they have errors an experienced California tax attorney will represent your interests to minimize the damage.  We can show you how may be able to avoid late penalties and reduce your tax liabilities. Find us on LinkedIn, Facebook, and Twitter  for more information.