Are You Going to File a Tax Return This Year?

Thinking about not filing a tax return this year? Think again. The IRS is very strict when it comes to filing tax returns. The IRS insists tax returns be filed when they are due even if full payment cannot be made with the return.

Penalties for not filing a tax return are very steep. Not filing a return on time could cause your tax bill to increase by 25 percent or more, due to penalties and interest charged. Even scarier than just paying more money, not filing tax returns could lead to criminal prosecution.

So what if you do not file a tax return when you are going to get a refund? There is no penalty for not filing a return if you are due a refund, but you have to be careful. If you wait too long to file a tax return where you are supposed to receive a refund, the IRS might not be obligated to distribute your refund to you.

There are some instances where the IRS can cut you some slack on the basis of “reasonable cause.” A “reasonable cause” could be a serious illness, but the IRS still expects the return to be filed once you recover from your illness. If you do not file due to “willful neglect,” you have no defenses, and the IRS will charge you penalties and interest on any tax that is owed to them.

An example of “reasonable cause” can be seen in a California case. The taxpayer claimed he could not file a return, or make a timely payment because of gall bladder surgery which was accompanied by a serious illness. The taxpayer recovered, and he resumed his legal practice, paid business expenses, managed two rental properties and took care of two children.

Since the taxpayer recovered from his illness and began doing things again, the IRS expected the taxpayer to file his late tax return. The taxpayer did not file the tax return until a few years later, and the IRS sent him a notice for penalties for not filing the return when it was due. The taxpayer sought relief from the penalties due to his “reasonable cause” defense because of his surgery and serious illness.

According to the case, “For illness to constitute reasonable cause for failure to file, petitioner mush show that it incapacitated him to such a degree that he could not file his return.” (Donald Ramirez, TC Memo 2005-179). Since the taxpayer was sick and got better, he was expected to file his return when he recovered from his illness.

If you cannot file your individual return by April 15th, remember that you can file an automatic six month extension. This extension gives you an extension of time to file, but it does not give you an extension of time to pay your tax bill. So if you are going to owe come April 15th, you have to pay by April 15th, even if it is an estimate of taxes owed.

Bottom line; file your tax return when it is due! Even if you cannot pay your tax owed. The IRS will work with you through payment plans and other options to pay your tax. If you just do not file, you can expect the IRS to come knocking on your door assessing penalties and interest.