The penalty for filing a return late is 5% per month of the total tax due with a maximum penalty of 25%! Ouch! It certainly pays to get your return in on time—especially if you owe a significant amount. But, there are ways that smart practitioners who deal with IRS collections issues often work for their clients to minimize penalties. One way is to file a timely extension (Form 4868). An extension does not extend the due date for the payment of your tax—only the filing of the return. Therefore failure to pay penalties will still apply to any tax due.
One other important thing to remember is that a timely filed return is deemed filed when delivered to an authorized carrier, but a returned filed late is deemed filed when received by the IRS. At 5% per month even days matter. Our firm makes a practice of hand-delivering tax returns to a local IRS service center. In addition to the signed return we always carry a copy of the return and request a date stamp on that copy from the IRS clerk who receives the return. This proves the date of filing definitively for calculation of the penalty.
Remember, willful failure to file a tax return is a misdemeanor per IRC Section 7203. In egregious cases, willful failure to file may be elevated to a felony under IRC 7201. For more information look here. The best advice is to file on time, but if you don’t—especially for a number of years—it may be best to consult a tax advocate.
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