Morvillo
Abramowitz Grand Iason Anello & Bohrer
Jeremy
H. Temkin
April
15 is commonly viewed as “Tax Day” in the United States, but approximately 11
million taxpayers take advantage of the automatic extension that allows them to
file their returns by October 15. While many taxpayers file for this six month
extension because of unavoidable delays in obtaining information from third
parties, for some taxpayers the decision to “go on extension” is driven by
procrastination.
October
15 has now come and gone and, if history is any guide, some of the taxpayers
who deferred filing their tax returns for no apparent reason other than
avoidance of an unpleasant task failed to meet the extended deadline. These
non-filers may now be subject to criminal prosecution. They will, however, be
infinitely better off filing their returns late, than not at all.
While
the government can use an untimely return as an admission that the taxpayer had
income and owed taxes, the cost of making these admissions often pale in
comparison to the alternative. The failure to file a timely income tax return
is a misdemeanor, punishable by a year in prison, and prosecutors often use the
repeated failure to file returns, combined with the substantial underpayment of
taxes, to argue that the taxpayer intended to evade her tax obligations. Filing
a late tax return before being contacted by an IRS special agent (i.e.,
criminal investigator) will substantially reduce the likelihood of a criminal
prosecution for either the initial failure to file or more serious felony tax
evasion charges.
Of
course, for some taxpayers, the decision not to file is a misguided reaction to
the lack of resources to satisfy their tax obligations. Unfortunately, this
creates a vicious cycle whereby the failure to file returns on a timely basis
results in the imposition of failure to file penalties on top of the failure to
pay penalties that would be imposed regardless of whether the return was filed
without payment. In other words, in addition to reducing the likelihood of a
criminal prosecution, filing delinquent returns without the required payment
will lower the taxpayer’s ultimate financial burden by stopping the accrual of
some (but not all) penalties.
The
IRS has increasingly recognized the dilemma facing the taxpayers who have
fallen behind on their tax obligations, and has implemented a “Fresh Start”
initiative to provide penalty relief to certain unemployed taxpayers, offer
installment agreements to more taxpayers, and make the “offer in compromise”
program more accessible. This is not to say that the IRS is showing a “warm and
fuzzy” side to all delinquent taxpayers, but taxpayers who fall behind on their
tax obligations need to be aware of their options for catching up.
Unfortunately,
many taxpayers who have failed to file their returns over a number of years
have an irrational fear of the consequences of coming forward, and thereby
exacerbate the damage caused by their conduct. It is important for these
taxpayers to recognize that, while dealing with an IRS revenue officer
collecting back taxes, interest and penalties is undoubtedly unpleasant, it is
a lesser evil than ignoring the problem and increasing both the financial
burden and the risk of prosecution.
