IRS Failure to File Penalty: Penalties for Not Filing a Tax Return

failure to file tax penaltyTo the IRS, not filing a tax return is a big deal, which is why they have implemented harsh penalties to individuals that to not comply with the law. Many individuals fail to file a return simply because they cannot pay the taxes they owe. Not filing your taxes because you cannot pay can be the worst thing to do, mainly because the failure to file penalty is significantly more than the failure to pay penalty and there are many options offered by the IRS to make it easy for taxpayers to pay back their taxes, even if they can't pay in full. While the IRS does want to receive the taxes they are due more than anything, they have made sure to make the failure to file penalty fairly harsh in order to prevent people from hiding if they can't pay their taxes.

When the Failure to File Penalty is Charged

The penalty will start to be charged after the due date of taxes. Typically the due date of taxes is April 15th. If you requested an extension and it was granted and the taxes were not filed by the new due date, then the penalty will start to be charged at the date that the extension was granted until. This penalty will only be charged if there is a tax amount due. If no tax amount is due there will be other downsides, but you will not be charged the failure to file penalty.

Standard Failure to File Penalty

The typical failure to file penalty when no fraud or negligence is involved is 5% per month on the total tax liability that is owed. The penalty will begin to accrue on the day after the due date if the tax return was not filed. This penalty cannot exceed 25% of the tax liability, so if the taxes remain unfiled for 5 months or more the penalty will be 25% of the original tax amount owed. If more than 60 days pass and the tax return still is not filed, the amount due cannot be less than the lesser of $135 or 100% of the amount due from the tax return.

Failure to File Penalty When Negligence or Fraud is Involved

If you did not file your tax return due to disregard of IRS tax rules and IRS tax regulations or for the purpose of tax fraud then the penalties will significantly increase. The penalties are multiplied by 3 in the case of fraud or negligence. The penalty that is charged each month will be 15% of the tax liability and this will reach a maximum fine of 75% of the total original tax liability.

Removing the Failure to File Penalty

The IRS does realize that there are times when individuals cannot keep in compliance with IRS rules and they do not want to punish those people. About 1/3rd of all tax penalties that are charged are later removed by the IRS. If you can prove to the IRS that there was reasonable cause for your failure to file on time then it is likely that they will remove or reduce your tax penalties. In order to do so you must file what is called penalty abatement. Reasonable cause is pretty much just a valid excuse that the IRS is willing to accept.The IRS has accept a huge array of excuses and they handle each on a case by case basis. Here are just some examples:

  • You mailed your return but it was returned because the postage was short
  • You mailed the return to the wrong IRS address
  • You were given the wrong information by an IRS employee
  • You experienced a sickness or death in the family

If you have penalties that are a significant portion of your total tax bill, it is a good idea to consider penalty abatement, if you are unsure if your excuse is valid, check with a tax relief professional.