The Internal Revenue Code requires individual taxpayers file on April 15th of each year to file an extension Form 4868, which allows you to estimate your tax liability for the prior year and make a payment. The IRS announced for residents and businesses in Texas suffering from the February 2021 winter storm that the filing deadline for 2020 taxes filing is pushed back to June 15, 2021. If you do not file an extension and allow your return to become delinquent, you have created a costly problem for yourself. The act of not filing a return and not paying the tax will cause the IRS to include in your tax debt the penalties of Failure to File and Failure to Pay. Each penalty cannot exceed 25% of the unpaid tax due, which causes huge amounts to be added to your tax liability and upon which interest is paid.

In recent years, we have encountered taxpayers that have not filed in many years – five to eight years. The penalty and interest provisions of the Internal Revenue Code had massive effects on the taxpayer. These people had either bad tax advice, were stubborn, or just wanted to challenge the “800-pound IRS gorilla.” Everyone can guess who won. To avoid this costly mistake, all the taxpayer had to do is to file an “incomplete return with the base information available” and follow up with an amended return within 60 days and the penalty would be minimal.

The IRS offers Tax Tips – In 2013 they issued the following eight important points, which we modified for 2018 rules about penalties for filing or paying late.

  1. Under IRC Sec. 6651(a)(1) a failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty under Section 6651(a)(2) may apply if you did not pay all the taxes you owe by the tax filing deadline.
  2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. Also, you can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement with the IRS to make payments. The IRS will work with you.
  3. The penalty for filing late is normally… Read more