BLOG POST

Tax Return - file on time

File a personal or business tax return by the due date, EVEN if you can't pay.

The IRS penalty for failure-to-file a tax return is 5 % per month of the unpaid tax, to a maximum of 25% of the unpaid tax.

In contrast the penalty for failure to pay the tax is 1/2 of 1% per month of the unpaid tax, to a maximum of 25% of the unpaid tax.

If either an individual or business tax return is not filed, the IRS can prepare a Substitute for Return (SFR), under the Internal Revenue Code Section 6020(b).

The IRS prepares the Substitute for Return without regard to any deductions or credits which may be available.

The IRS can and does start Collection based upon the Substitute for Return. The IRS can record a Notice of Federal Tax Lien (NFTL), or issue a Notice of Levy (garnishment) based upon the Substitute for Return assessment.

The IRS has criminally prosecuted high net worth individuals or celebrities in the past for failing to file Forms 1040.

Generally, if one files a personal bankruptcy, a Substitute for Return, would not be discharged by the Bankruptcy court.

An extension of time to file is NOT an extension of time to pay the unpaid tax. ! As a retired IRS Revenue Officer with a 30-year career, and now as an Enrolled Agent, I resolve these issues for clients.

—Richard A. Perlman, Enrolled Agent, June 16, 2014