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Tax Tip of the Week | No. 467 | Hmmm…Behind on Filing Your Income Tax Returns and/or Paying Your Income Taxes? July 4, 2018

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Tax Tip of the Week | July 4, 2018 | No. 467 | Hmmm…Behind on Filing Your Income Tax Returns and/or Paying Your Income Taxes?

You can run but you can’t hide. Delinquent tax return filing or failure to pay your income taxes is not a problem that ever goes away. In fact, the longer you wait to address this problem, the worse it becomes.

The highlights that follow are specific to the Internal Revenue Service. Other taxing entities have their own rules and regulations for past due returns and past due tax balances.

The “failure to file” IRS penalty is typically 5% per month and the “failure to pay” IRS penalty is an additional 5% per month. These two penalties may each be up to 25% of your unpaid taxes. To add insult to injury, interest expense to the IRS also accrues until the balance is paid in full.

The IRS may waive these penalties if you have reasonable cause for not filing your return or paying your taxes. Criminal charges may be sought against a taxpayer if the IRS believes you are evading taxes.

Some people won’t file a return with a balance due if funds are lacking to pay the IRS. In these cases, one may be in a better position to file the return without payment to avoid the “failure to file” penalty.  In this scenario, the “failure to pay” penalty would be the only penalty assessed, along with the interest expense of course.

If paying your return balance is not an option, an installment agreement may be applied for. If eligible, this agreement sets-up a monthly payment. Warning: These installment agreements are typically null and void if a payment is missed.

Another option, although far from easy to obtain, is to request an “offer in compromise.” This permits you to pay, under certain conditions, less then the full overdue balance.

Another possibility exists, if the IRS agrees you cannot pay your past due balance and your living expenses, your account may be moved to “currently not collectible.” Usually, in this situation, the IRS collection efforts will ratchet down. However, the debt remains with penalties and interest continuing to grow.

The moral of the story is not to ignore any IRS correspondence (or any tax correspondence for that matter) and be proactive in dealing with it. Your tax professional can help you come up with a workable plan. They have been down this road before and most likely will have a working rapport with the tax agency in question.

Credit to Sarah Skidmire Sell, The Associated Press, Sunday April 29, 2018, Dayton Daily News

Thank you for all of your questions, comments and suggestions for future topics. As always, they are much appreciated. We may be reached in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.

This week’s author – Mark Bradstreet, CPA

–until next week.


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