Did you know that the IRS penalty for not FILING your Federal income tax return is 10 times greater than the penalty for not PAYING your income taxes? Yep…seriously. The IRS offers many different options to taxpayers to help them resolve their tax debt but you’ve got to file those returns! The focus of my practice in Severn, MD is to help taxpayers get in compliance with their IRS and state tax filings and to represent them before the IRS and the states with their tax collection issues.
The IRS defines three types of non-filers:
1) The Habitual Non-Filer – This is someone who just doesn’t file their tax returns, for whatever reason. Maybe they think that they shouldn’t have to pay taxes and are willfully not filing, or maybe they aren’t aware that they need to file.
2) The Skip Filer – This taxpayer will file one year and then skip one or more years, and then repeats this process. They may be unorganized, or they may have had a year where their self-employment income was higher than normal and they didn’t keep up with their estimated tax payments. Their dread of seeing the large amount due on the return keeps them from filing that year.
3) The Stop Filer – This person was compliant for a long time and then all of a sudden stops filing. A tragedy or an illness or some other life event such as a divorce is often what is behind the non-filing.
So, why do you not want to be a non-filer? Glad you asked. There are several very good reasons:
Very High Penalties
As I mentioned above, the IRS penalty for not filing your Federal income tax return is 5% of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and maxes out at 25% of your unpaid taxes.
The penalty for not paying your taxes, on the other hand, is ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.
If you timely request an extension of time to file your individual income tax return and pay at least 90% of the taxes you owe with your request, you may not face a failure-to-pay penalty, but you must pay any remaining balance by the extended due date (which is generally 6 months later).
Increasing Technology and Collaboration
Some people think that if they don’t file that the IRS won’t know that they owe…right? Absolutely not true. It’s getting harder and harder for taxpayers to hide these days and to “fly under the radar”. The IRS may be losing staff due to budget cuts, but their technology and their ability to locate non-filers is growing exponentially.
The IRS not only shares information with the states and with cities but also with the US Postal Service, the Department of Motor Vehicles and the Social Security Administration to name a few. This information sharing program allows the IRS to data match, and its effectiveness can be seen in the steadily growing numbers of delinquent accounts in collection each year despite the shrinking number of IRS employees.
Inability to Negotiate
The IRS offers many programs to taxpayers to assist them in paying their delinquent taxes but, before you can even think about taking advantage of them, you have to be considered “tax compliant”—meaning, you have to be filing your tax returns. Keep in mind that you don’t have to pay your delinquent taxes to be compliant but just to file.
Life is hard enough without adding the stress and worry of liens and levies to the mix. We live in a country that allows us to start businesses, buy investments, build beautiful properties and use our talents and knowledge to make as much money as we want. Along with that freedom comes our responsibility to pay income and employment taxes…and it’s a relatively small price to pay.
My goal is to help taxpayers meet their tax filing obligations, and to pay the least amount of tax legally possible, but also to represent them when they have an IRS or state collection issue. I have clients not only in Anne Arundel County, MD but all over the world since technology has made our world much smaller and our ability to work remotely much easier. Come see me if you’re in Severn, MD…but I promise to work just as hard for you if you never step foot in my office. If you’re a non-filer in Severn, MD or anywhere else and need help in getting compliant with your IRS and state tax filings and in working out a payment agreement for your taxes due, please contact my firm at:
Lisa D Church, CPA, EA, NTPI Fellow, MBA
7865 Clark Station Rd
Severn, MD 21144