Failure to File Tax Returns or Pay Tax Penalties

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Penalties are assessed when a taxpayer fails to file his/her income tax return on time and fails to pay taxes on time. If you cannot complete your income tax return by the normal due date (usually April 15), you may request to have the due date extended for four months. However, you must still pay an estimate of the taxes that you owe by April 15. If your estimate is less then what you actually owe, then there may be penalties for failure to pay your taxes in full.

What Is The Penalty For Failure To File A Tax Return?

If you cannot complete your income tax return on time and do not request an extension to have the due date delayed for four additional months, then you will be assessed a penalty of 5% of your tax liability per month for up to 5 months. However, if you also have penalties assessed for failure to pay taxes, then you only need to pay the penalty for failure to file for the first 5 months.

What Is The Penalty For Failure To Pay Taxes?

If you fail to pay taxes on time, then you will be assessed a penalty of 0.5% of your tax liability per month or a fraction of a month. The total penalty, however, cannot exceed 25% of your tax liability. As mentioned above, if you also have to pay the penalty for failure to file tax return, then you only need to pay the failure to file penalty for the first 5 months. You will need to pay the failure to pay penalty starting in the 6th month.

Is There A Defense To Avoid Paying These Penalties?

Yes. If a taxpayer can show that the failure to file and to pay taxes was due to reasonable cause and not willful neglect, then penalties may be waived. It is usually not enough to show that you have acted in good faith and was ignorant. You may need to demonstrate that you have exercised ordinary business care and judgment but still failed to file or to pay taxes on time or would suffer an undue hardship for doing so. Reliance on an expert's opinion (e.g. attorney or accountant) may be used as a defense against the penalties, but such opinion must be based on sufficient relevant facts that the taxpayer disclosed to the expert.

Do I Have To Pay Penalties If I Have Filed For Bankruptcy?

Maybe. The bankruptcy courts have equitable powers to abate these tax penalties entirely, but not to reduce them. So, the courts can either completely remove these liabilities or allow them to be imposed on the bankrupt taxpayer.

Do I Need an Attorney to Help Me with My Tax Problems?

Tax laws are complex and ever-changing. Although there are various tax preparation softwares on the market that may help you with your tax problems, they cannot provide the same level of service that an experienced and knowledgeable tax attorney can. If you are unsure about your tax penalties or you need someone to represent you before the IRS, a tax attorney can help you.

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Last Modified: 11-02-2010 04:21 PM PDT

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