There are a number of reasons as to why an individual may have failed to file or pay their taxes for one or more years. Some common reasons that explain why people may neglect to file or pay taxes include illness, an unanticipated emergency, personal hardship, natural disasters, and/or death. Unfortunately, not filing or paying your taxes is not without consequences.
For instance, the Internal Revenue Service (“IRS”) will impose a penalty on persons who do not file or pay their taxes by Tax Day, which falls on April 15th. The exception to this date is if the individual requests an extension to file their taxes. If granted, their taxes will then be due on the extended due date.
An individual may also be subject to penalties when they fail to pay back taxes on unfiled tax returns. However, if the individual can show that they had a “sound reason” for failing to file or pay, then the IRS may agree to reduce the amount they owe in fines (e.g., either fully or partially).
The above scenarios are all directly tied to instances that either make it difficult for the individual to pay or file their taxes, or could be related to reasons like they simply forgot to file taxes. These generally will not lead to criminal consequences.
In contrast, it is illegal to not file taxes if you deliberately refuse to do so with no sound reason to support your decision. Such actions will amount to the criminal offense known as “tax evasion”. Briefly, tax evasion is defined as participating in an intentional scheme to defraud or avoid paying taxes to the IRS.
Additionally, tax evasion can lead to serious criminal penalties that involve worse punishments than having to pay standard fees for unfiled or unpaid tax returns. The two most common forms of punishment issued for an individual convicted of committing tax evasion include substantial criminal fines and a sentence of imprisonment.
What Happens if I File My Tax Returns After they are Due?
Sometimes, an individual may fail to file their income tax returns on time for one or more years. Out of fear of repercussions, such individuals may also neglect to contact the IRS about failing to file them and never request an extension. Despite this conduct, an individual may still be allowed to file overdue tax returns and to pay any back taxes that are owed.
However, filing and paying taxes long after they are due is not without consequence. Both acts will result in monetary penalties that will begin to accrue simultaneously and start to run the day immediately after the filing due date. In general, the penalty for not filing taxes will typically consist of a percentage of the total amount of overdue taxes. The same holds true for failing to pay taxes as well.
One final and important note about tax-related penalties is that the “failure-to-file” fee tends to be higher than the “failure-to-pay” penalty. Additionally, while it is generally recommended that individuals file and pay their taxes on time to avoid the extra hassle and consequences, the amount of combined penalty fees cannot exceed a certain percent of the total sum of unpaid taxes in a given month.
Will the IRS Work with Me If I Haven’t Filed Taxes for a Few Years?
An individual who cooperates and admits to not filing or paying their taxes may be able to negotiate with the IRS for a reduction or removal of their penalty fees. This works best in situations where an individual can prove that they had “reasonable cause” for failing to file or pay their taxes.
Reasonable cause can be demonstrated by providing evidence that shows the individual made a valid and prudent attempt to meet the tax deadlines, but that a “sound reason” prevented them from achieving this goal. Some examples of sound reasons include serious medical conditions, death, natural disaster, and several other grounds that can be found on the IRS’s website.
If an individual is successful in establishing a sound reason as to why they missed the deadline to file and/or why they did not pay their taxes, the IRS may waive their penalty fees. However, the individual will be required to pay any back taxes still owed. If the individual cannot reasonably repay this amount by the prescribed deadline, then they may also be able to negotiate with the IRS to figure out a way to make payments on this as well.
In most cases, the IRS will allow them to create an installment plan. An installment plan is an agreement formed between the IRS and an individual in which the individual consents to paying some amount of the back taxes still owed each month.
Additionally, as part of this agreement, the IRS may also allow the individual to make reasonable deductions for some of their prior tax returns. These deductions may include items, such as medical expenses and/or donations made to charity.
What Can I Do for this and Subsequent Tax Years?
An individual who fails to file their taxes before the filing deadline each year may be able to request an extension from the IRS. However, the extension for time must be submitted prior to the initial filing deadline. In most cases, the IRS may approve an extension that provides an individual with up to six additional months to file their taxes from the date of the initial filing deadline.
It should be noted that an individual who requests a timely extension and who pays at least 90% of the taxes they owe at the time of their request, may be able to avoid the “failure-to-pay” penalty fee. If the extension is granted before they are able to pay the filing fee, then they will have up to the extended due date to pay their remaining balance or else they will be liable for additional fines.
Aside from negotiating with the IRS and/or requesting an extension on a filing deadline, it may be in an individual’s best interest to consult a local tax attorney and an accountant. Both parties can be extremely useful resources since they know the ins-and-outs of the federal U.S. Tax Code as well as the procedures for late filings or payments.
Such professionals can also provide advice that is tailored to an individual’s specific situation and they can go over alternative options that can help resolve an individual’s tax issues.
Can You Go to Jail for Not Filing Taxes?
Failing to file tax returns can have serious consequences. If the act is not coupled with another crime, such as tax evasion, then not filing taxes will most likely be charged as a misdemeanor offense. A misdemeanor is considered a lesser criminal offense than a felony. Thus, individuals who simply neglect to file any tax returns may be required to pay fines of up to $100,000 and will have to pay off all of their overdue taxes.
In addition, an individual may also face jail time for not filing taxes. Again, while a misdemeanor is not as serious a felony offense, an individual can still be sent to a county jail to serve a sentence of up to one full year.
Is Not Paying Taxes a Felony?
Although most individuals who fail to pay their taxes can usually provide a sound reason or will chalk it up to a mistake (i.e., negligence), there are some situations where not paying taxes can result in felony charges.
As previously mentioned, deliberate avoidance to pay or report taxes to the IRS is known as income tax fraud or tax evasion. The IRS will consider certain factors to determine whether an individual made a genuine mistake or if their failure to pay taxes was done deliberately and with the intent to defraud the agency.
Some activities that may raise a red flag include filing a false income tax return, using a fake Social Security number, and/or hiding substantial amounts of income in offshore accounts.
If any items alert the IRS to suspicious or fraudulent activity, then an individual can be charged with committing a felony offense. This is especially true if the circumstances show an egregious abuse of the federal U.S. Tax Code.
On the other hand, if it appears that a person made a simple mistake or there was a single minor calculation error, then they will only need to pay standard tax penalties fees as opposed to having to go to jail or pay criminal fines like they would for a felony offense.
Do I Need a Tax Attorney for Help with Late Tax Payment Issues?
If you have not paid taxes or filed your income tax returns for one or more years, then it is strongly recommended that you consult both a tax attorney and an accountant for further guidance.
A local tax attorney can explain how different tax laws may affect your situation, can discuss the potential penalties you may be facing, and can communicate with the IRS on your behalf to clear up any errors and to ensure that your matter is resolved as fairly and efficiently as possible.
Alternatively, depending on the facts of your case, you may also want to hire a local criminal lawyer to help you devise a strategy and prepare a defense against any pending criminal charges (e.g., tax evasion). Additionally, your lawyer can assess your options and provide advice on whether it is better to take a plea deal, as opposed to going to trial.
Finally, regardless of whether you decide to take a plea deal or go to trial, your lawyer will be able to advocate on your behalf at both.
