Tag Archives: tax penalties

Tax Penalties: What is Failure to Pay?

Posted on by

A tax penalty is assessed when a taxpayer fails to meet a tax filing deadline or fails to make a tax payment when it is due. The IRS and State Tax Agencies impose such penalties as a method of encouraging taxpayers to meet their tax obligations. Both the Failure to File Penalty and the Failure to Pay Penalty must be announced through formal written notification from the IRS or State Tax Agency. The written notice must state the reason the tax penalty is being assessed and must also include a full explanation of how it has been calculated. Because tax penalty notices are computer generated and often include errors, it is important for a taxpayer to verify that the reported tax penalty amounts are accurate before making payment.

With the economic climate what it is today, many taxpayers owe taxes that they are unable to pay. A taxpayer who is faced with this situation should be well aware that the worst response is to ignore the problem and hope that it will go away. The financial consequences of disregarding tax deadlines and tax payments accumulate rapidly over time and more drastic measures are eventually imposed when a tax debt is ignored. A taxpayer’s best approach is to always comply with tax filing deadlines to make tax payments when they are due. When sufficient funds are not available to pay the full amount of the debt, the taxpayer should make full use of one of the many tax settlement options offered by the collecting tax agency.

The Consequences of Not Paying Your Tax Bill 

  • When no tax return has been filed, the IRS or State Tax Agency has the authority create a Substitute for Return. This document is an educated guess as to how much a taxpayer owes based on information from other sources. Since the Substitute for Return does not include deductions and exemptions to which the taxpayer may be entitled, the estimated tax liability shown is usually greater than what is actually owed.
  • A taxpayer who fails to file a tax return can be assessed a Failure to File Penalty of 5% of the amount of tax due for each month that the return is overdue up to a maximum of 25% of the amount owed. In addition, although it is seldom invoked, a taxpayer who fails to file a tax return can be charged with a misdemeanor which can carry a fine of up to $25,000 and a one year prison term.
  • When a tax return has been filed but there is an outstanding tax amount due, a taxpayer can be assessed a monthly Failure to Pay Penalty of between 0.25% and 1.0% of outstanding tax balance. The Failure to Pay Penalty, which is normally set at 0.5 % per month, is assessed from the date the tax return was originally due until the full balance of the tax amount is paid or a tax settlement agreement has been negotiated with the collecting tax agency.
  • When tax penalties and interest are allowed to accumulate over time, the result is often a tax debt that is much more formidable than the original amount owed. In addition, the IRS or State Tax Agency will eventually resort to more aggressive techniques such as levies, liens, and wage garnishments when an outstanding tax obligation is left unresolved. These more drastic actions can have a lasting affect on a taxpayer’s credit rating and overall financial well-being.

If you have been assessed a tax penalty for failure to file a tax return or failure to pay a tax debt, we can help you determine whether the assessed tax penalty is accurate. Our experienced tax settlement professionals will carefully examine previously filed returns and file missing and amended returns when necessary. By identifying available tax benefits that have not been utilized, this process alone can often result in a significant reduction in the tax amount owed. If there is an outstanding tax liability, we can help you resolve it. For more information about our tax debt resolution services, visit us today at professionaltaxresolution.com. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation. 

IRS Penalties for Hiding Income Offshore

Posted on by

You may remember Mitt Romney’s refusal to make his complete tax returns public due to his offshore accounts in the Cayman Islands in January. Romney at least reported the income to the IRS, if not the American public. The OC Register reported this week that Lake Forest resident Louis Joseph Vadino is being investigated by the IRS for evading 12 years of taxes totaling nearly $4 million. He did this mainly by opening foreign bank accounts and creating companies outside of the U.S. to hold property titles, some of them hidden under the relatives’ names. He is scheduled to go to trial at the end of July.

The IRS has specially trained examiners and international partners that make sure U.S. citizens and residents accurately report income and pay the appropriate taxes on foreign entities. Failure to report foreign sources of income may be a criminal act. Worldwide income and foreign bank or investment accounts are required to be reported on your U.S. tax return. Filing rules for tax returns on income, estates, and gifts are generally identical whether you are living in the U.S. or abroad.

If you do attempt to evade taxes on income from foreign sources, you can be subject to additional taxes, IRS penalties, interest, fines, imprisonment, or deportation if you have a green card.

The Offshore Voluntary Disclosure Initiative (OVDI) of 2012, an IRS initiative that was extended indefinitely after being in effect from 2009–2011, allows taxpayers who have hidden offshore accounts to become compliant and current with their taxes without criminal liability. While they can face a 27.5% IRS penalty, taxpayers in limited circumstances may qualify for a penalty of 5%. Offshore accounts or assets that did not surpass $75,000 in any calendar year will have a penalty of 12.5%. Taxpayers may choose to be examined by the IRS if they feel the penalties are disproportionate to their income. Unreported foreign gifts or bequests of $100,000 or more in one year can be penalized from 25%–35%, even if no taxes are due. Under the OVDI process, penalties are waived for this situation.

While the tax penalties under OVDI may seem high, the benefits of voluntarily reporting this income far outweigh the costs. The IRS tax penalties could be much higher if the offshore income is discovered by examiners, not to mention the criminal prosecution that can lead to time in jail.

If you need help with becoming compliant with the IRS, our experienced tax settlement professionals can help. We can also help you file your taxes. Please visit professionaltaxresolution.com for more information on our tax resolution services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.