CONSEQUENCES OF NOT FILING TAXES

Taxes are typically a simple sequence of filing a tax return, paying the balance due or receiving a refund. One of our primary responsibilities as tax professionals is to keep the client in perpetual compliance. Knowing IRS due dates is crucial to guiding our clients to file timely. If a taxpayer is found to have willfully neglected to
file a return, the IRS can review their entire tax history for fraud. This potentially creates more stress since the period for fraudulent review is typically three years.

Penalties and interest Non-compliance is costly. The IRS assesses multiple penalties that layer on top of each other. In addition, interest is charged on unpaid balances. Tax preparers often charge more for filing pastdue tax returns. Not to mention, there may be additional administrative fees to catch up on prior-year bookkeeping.

Once the filing deadline passes, the IRS will mail the taxpayer a letter notifying them of a failure to file penalty. The penalty is calculated on two factors: how
late the return is and the amount of unpaid tax. The IRS bases the timeliness of a return on the original due date, not the extension due date. The IRS calculates
unpaid tax based on information it knows, reported under the taxpayer’s SSN. The IRS looks at the total tax on the tax return, less any withholding, estimated
payments and allowed refundable credits.

According to the IRS:

• The failure-to-file penalty is 5% of the unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of the
unpaid taxes.
• If both a failuretofile penalty and a failureto pay penalty are applied in the same month, the failure-to-file penalty is reduced by the amount of the failure to pay penalty for that month for a combined penalty of 5% for each month or part of a month that the return was late.
• If after five months the taxpayer still hasn’t paid, the failure to file penalty will max out, but the failure-to-pay penalty continues until the tax is paid, up to 25% of the unpaid tax as of the due date.
• If the return was over 60 days late, the minimum failure to file penalty is $435 (for tax returns required to be filed in 2020, 2021 and 2022) or 100% of the tax required to be shown on the return, whichever is less.

Collections

The IRS issues bills for amounts due. It will send at least one reminder. Of course, taxpayers have the right to disagree with any information on the bill. The IRS
provides guidance on how to dispute charges on the bill itself. If taxpayers do not pay, or do not establish payment arrangements, the collection process begins.

The IRS collection process includes liens and levies. A lien is a legal claim against all the taxpayer’s current and future property. A levy is the actual seizure
of property. The IRS cannot seize property if the taxpayer is in good standing with (or has a pending) installment agreement or offer in compromise, or if it
determines there’s an economic hardship.

Other IRS violations

• Submitting fraudulent returns
  
• Tax evasion
  
• Making fraudulent and false statements
  
• Identity theft
  
• Nonsufficient funds

Conclusion

There are many steps and opportunities to rectify tax situations. The IRS offers online tax tools like the Interactive Tax Assistant and the Earned Income
Tax Assistant. Plus, taxpayers can always view their tax accounts on IRS.gov.