IRS Penalties Slam Those Who Fail to File, Fail to Pay

Arizona BankruptcyNobody enjoys paying taxes or dealing with the Internal Revenue Service. When you owe a big payment, it can be tempting to just put your head in the sand, ignore it and hope it goes away – especially if you don’t have the money available. Unfortunately, the IRS isn’t going to simply let that slide. Missing a filing date or payment deadline can be financially disastrous.

Some taxpayers think that if they can’t afford to make a tax payment, then they shouldn’t bother even filing. Perhaps they think it’s possible to stay under the radar and escape IRS notice. The reality is that it’s better to file even if you can’t pay in full instead of avoiding the whole process. If you don’t do anything, not only will you be hit with a penalty for not paying on time, but you’ll also incur fines for not filing. The failure-to-file penalty is worse than the one for not paying.

If you don’t file your return or an extension on time, the IRS will assess a penalty of 5 percent of the unpaid tax every month or portion of a month that the filing is late. The maximum is 25 percent of the unpaid tax balance. If you file more than 60 days late, the penalty is $135 or 100 percent of the tax owed, whichever is smaller. If you fail to pay on time, the penalty is 0.5 percent of the unpaid tax every month it is late. The maximum is 25 percent of your unpaid tax amount. The formula changes slightly for those who fail to both file and pay on time.

You can avoid the penalty if you request a filing extension and send at least 90 percent of what you owe by the initial deadline. The only exception is if you can prove that you had a legitimate reason for missing the deadlines and didn’t simply ignore the due dates.

If you can’t pay the full amount, the IRS recommends paying as much as possible. The remaining balance can be addressed through a payment plan, and the agency will work with you. Keeping up your end of the bargain can help you avoid penalties. An experienced Arizona tax lawyer can help guide you through the process, ensuring that your rights are protected and that you understand what is happening.