In order to encourage taxpayers to remain compliant with tax filing laws, the IRS has the power to impose penalties if you do not file or pay your taxes. If left unaddressed, these penalties can quickly add up. When you work with Pontius Tax Law, you may be able to find a solution to your penalties for unfiled tax returns in Washington DC.
What Penalties Result from Unfiled Tax Returns?
Almost any type of non-compliance with the IRS could lead to penalties, including the failure to file or pay taxes in a timely manner. The best advice for strategic penalty prevention is to timely file and pay one’s tax returns by their due date. If the taxpayer cannot pay the amount due, filing on time will at least reduce the penalties. The following are some of the most common penalties.
Failure to Pay Penalty
The failure to pay penalty is one that the IRS issues when a taxpayer does not pay their taxes on time. This penalty is one-half of 1% of the underlying tax per month, which can accrue up to a maximum of 25% of the underlying tax.
Failure to File (Delinquency) Penalty
The IRS issues the failure to file penalty (also known as a delinquency penalty) to taxpayers who do not timely file their tax returns. That penalty is 5% of the underlying tax per month, up to a maximum of 25%.
Dishonored Check Penalty
Dishonored check penalties are assessed against a taxpayer if a check to the IRS does not clear. If the check at issue is $1,250 or larger, the IRS will assess a penalty of 2% of the dishonored check value. However, if the amount of the check is under $1,250, the penalty is a flat $25.
Is There a One-Time Penalty Forgiveness?
The IRS does have one-time forgiveness option called first-time penalty abatement, which is for taxpayers who failed to file or pay on time. Taxpayers would qualify for the administrative relief from penalties if the following three things are met:
- The taxpayer did not previously have to file a return or there are no penalties in the prior three years
- All current tax returns or extensions have been filed
- The taxpayer agrees, or has arranged, to pay any tax due related to that tax return
This one-time tax forgiveness entails contacting the IRS, either with phone call or via mail, and requesting that the penalties (and potentially the interest on the penalty) get reduced or abated. After the first-time penalty abatement, the IRS can impose all other civil penalties at their discretion.
What Penalties Are Eligible for Penalty Relief?
The IRS has over 100 civil penalties and virtually all of them could be eligible for penalty relief. The most common tax penalties would be failure to file a tax return on time, failure to pay a tax return on time, and failure to make deposits of certain taxes as required. There is also the accuracy-related penalty of 20% for a taxpayer who is negligent in their return, and perhaps had gross understatements of income or gross overstatements of deductions. Another penalty that the IRS can issue would be a civil fraud penalty, which would be 75% of the underlying tax. That also could be abated and taken down to potentially a 20% penalty.
The 20% penalty could be reduced to a warning letter depending on the economics, the amount of the penalty for abatement, and whether it is worthwhile to challenge it. It is not easy to prove that the taxpayer was acting reasonably if the IRS previously looked at the issue and determined the taxpayer was not being reasonable. Due to this, most reasonable cause cases are part of another case with other tax issues as opposed to a standalone tax resolution case.
Speak with a DC Attorney About Penalties for Unfiled Tax Returns
If the circumstances are right, you may be able to get the IRS to abate your penalty if it is your first time. For repeat penalties or those that are more serious or complex, it is wise to contact a seasoned tax lawyer about your options. A member of our team is happy to talk with you about penalties for unfiled tax returns in Washington DC.