The Internal Revenue Service (IRS) is serious about its work, and anyone who fails to realize this fact runs the risk of potential penalties for unpaid taxes. It’s important to understand the types of penalties that you can incur if you ignore the law and its levy on your income and assets.
Common Penalties for Unpaid Taxes
Two common civil penalties that people face include:
- Failure To File Penalty. If you do not file your tax return by the due date, a penalty of 5% may be imposed. This penalty applies to any of the tax not paid by the due date for each month that the return is late. Your penalty cannot exceed 25% of your tax, but if your return is more than two months late, you will be fined a minimum of either $100 or 100% of the balance due, whichever is less. This penalty may be waived only if you can demonstrate reasonable cause for the late filing.
- Failure To Pay Penalty. You may be required to pay up to 1% of your unpaid taxes for each month post- the due date that the tax is not paid. This penalty will be pro-rated as necessary and cannot exceed 25% of your unpaid tax. This penalty may be waived only if you can demonstrate reasonable cause for not paying the tax on time. It is important to note that any Failure To File Penalty that has been imposed will be reduced by the Failure to Pay Penalty during any month(s) that both penalties are in effect.
In addition to these potential penalties for unpaid taxes, you should know that repercussions will take effect for other IRS compliance failures. For example, you may be charged civil penalties if you understate your tax, file a frivolous return that does not include enough information to properly calculate the correct tax or fail to supply your social security number. If the IRS finds you guilty of tax fraud, e.g., claiming false deductions, concealing assets or knowingly misrepresenting your income, the penalty is 15% for each month that the return is late, up to a maximum of 75%.
Potential Criminal Charges
Beyond the financial cost of civil penalties for unpaid taxes, you might find yourself facing criminal charges for your negligence. You could possibly be subject to criminal prosecution for actions such as:
- tax evasion;
- willful failure to either file a return, to supply information or to pay any tax due;
- fraud and false statements about income, assets, dependents, etc.; and
- preparing and filing a fraudulent return.
Getting Help
If you have made an honest mistake, or if you tried to evade your tax liability, contact an experienced tax attorney who can help you deal with the IRS. In most instances, the federal government will work cooperatively with individuals to devise a repayment strategy. Whatever you do, don’t simply ignore notices and mandates for payment with the hope that things will resolve themselves. You’ll eventually find yourself in a much worse situation than if you had addressed the problem head-on from the start.
