Federal law requires that you file an income tax return by April 15th and pay all of the money that you may owe to the IRS by that time. You may face a variety of consequences and penalties if you either fail to file your taxes on time or pay all of the money that you owe when it is due. Between interest and penalties, the amount due to the IRS can increase in a hurry, making it even more important that you turn to a New York tax defense lawyer as soon as possible in the hopes of limiting financial damage to yourself.
Penalties for Missing the April Tax Deadline
26 U.S. Code § 6072 sets April 15th as the tax deadline each year. If you do not owe money to the IRS, you have the ability to request a six-month extension. Without an extension, you must be timely on your tax filing, or you can face penalties. Under the Internal Revenue Code, the IRS can impose a penalty of 5% of the amount that you owe for each month that you have failed to file a tax return. They can charge this penalty for five months, and the amount is in addition to whatever money you may owe to the IRS.
In addition, the IRS can impose additional penalties for the failure to pay taxes. This penalty is .5% of the amount of taxes that you owe for each month that you did not pay. The IRS can continue imposing this penalty until it reaches 25% of the amount of money that you owe. Even if you sought an extension of the time to file, you must still pay this penalty.
Finally, the IRS will also impose interest on your balance. The agency is allowed to charge an interest rate that is designated by statute. The current interest rate is 6%, but it will soon be raised to 7%. Interest compounds on a daily basis, and it can cause the amount of money that you owe to increase significantly over time. The combination of interest and penalties means that any tax debt can grow to be massive and unmanageable if you do not take action as soon as possible.
What the IRS Does When You Do Not File or Pay Taxes
The IRS will not send you an immediate notice that you did not file or pay taxes, but you can expect to hear from the agency before the end of the calendar year. Even if it takes the IRS some time for action, the agency will still apply penalties and interest during this period.
The IRS already has an idea of the amount of money that you may owe in taxes. If you are an employer or an independent contractor, your income has already been reported to the IRS. If you own a business, the IRS may use previous year figures as a baseline in its calculation. Not only will you have to pay the principal, but you must also pay penalties and interest. If you have not filed your tax return, the IRS may even substitute its figures, and you may not get all the credits and deductions that you could have taken.
The IRS will send you a series of letters when you owe money. As soon as 30 days after your missed payment, the IRS will send you CP501 / Letter 5070. This communication will inform you that you either owe money on taxes or have failed to file a return. The IRS will follow that letter up 30 days later with another reminder if you still have not paid or filed. Thirty days later, the IRS will send you a final notice, which is the last communication that they will issue before they move to place a lien on your property or take other steps to collect the money that they are owed. Typically, you can expect a timeframe of four to six months for enforcement action after the IRS sends you an initial notice. Once the IRS initiates communication with you, they will move to enforce if you do not engage with them.
Why You Need to Hire a Tax Defense Attorney Early
Regardless of the reason why you did not file or pay your taxes on time, you cannot hope that the situation will go away on its own because it most certainly will not. In many cases, being proactive and self-reporting to the IRS is in your best interests. You may have more flexibility to deal with the IRS, and the agency may be more willing to work with you if you come to them, as opposed to the other way around.
First, hiring a tax defense attorney and approaching the IRS will keep the agency from filing a Substitute for Return (which may result in you owing even more taxes). In addition, you may be able to request a penalty abatement if you otherwise have a good compliance history, or if this was the first time that you failed to file. Coming forward to the IRS is a show of good faith, and it may allow the agency to be more flexible with you.
Your tax defense lawyer may be able to negotiate an arrangement with the IRS that could alleviate your situation. For example, the IRS could agree to an installment plan that allows you more time to pay. You may even make an Offer in Compromise, which is a settlement that reduces the overall amount of money that you owe.
Contact a New York Tax Defense Lawyer
At The Thorgood Law Firm, our New York tax defense attorneys help you address late filings, minimize penalties, and communicate with the IRS on your behalf. We provide strategic guidance to protect your business and personal assets when you are experiencing tax difficulties with the IRS. Contact The Thorgood Law Firm today either through our website or by calling us at (212) 490-0704 to get experienced help before the situation escalates.
FAQ Section
Frequently Asked Questions
What happens if I miss the April tax deadline and owe money?
If you miss the April tax deadline and owe money, the IRS will begin charging penalties and interest on your unpaid balance. You may also receive notices from the IRS, and continued inaction can lead to liens or other collection actions.
What is the penalty for failing to file a tax return?
The IRS may charge a failure-to-file penalty of 5% of the unpaid taxes for each month your return is late, up to a maximum of 25%.
What is the penalty for failing to pay taxes owed?
The failure-to-pay penalty is typically 0.5% of your unpaid taxes per month, up to a maximum of 25%. This applies even if you file an extension but do not pay what you owe.
Does the IRS charge interest on unpaid taxes?
Yes, the IRS charges interest on unpaid tax balances. The rate is set by law and can change periodically. Interest compounds daily, which can significantly increase your total debt over time.
Will the IRS contact me if I don’t file or pay taxes?
Yes, the IRS will send a series of notices informing you of your tax liability. These notices escalate over time and may lead to enforcement actions if ignored.
What is a Substitute for Return (SFR)?
A Substitute for Return is a tax return filed by the IRS on your behalf if you fail to file. It often does not include deductions or credits you may qualify for, resulting in a higher tax bill.
Can I reduce IRS penalties if I missed the deadline?
In some cases, you may qualify for penalty abatement, especially if you have a history of compliance or a reasonable cause for missing the deadline.
What options are available if I cannot pay my tax debt?
You may be eligible for an installment agreement or an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed.
Why should I hire a tax defense attorney?
A tax defense attorney can help you communicate with the IRS, reduce penalties, negotiate payment plans, and protect your assets from enforcement actions.