… But What If I Don’t File My Tax Return?

An all-too-real conversation with days to go before the tax filing deadline:

“Morgan, I hear the IRS is in a real mess, months behind with mail, years behind with returns, deadlines extended the last two years.  What is the prospect of something bad happening if, you know, I just don’t file this year?”

It is true that the IRS is a real mess, and trying to deal with the IRS has been and continues to be very frustrating.  Nevertheless, the IRS will catch up, and if you have not filed, by the time the IRS catches up with you, the maximum penalty will have been incurred – 5% of the unpaid tax for each month (or portion of a month) the filing is late, for a maximum of 25% of the unpaid tax.  If the return is filed over 60 days late, the minimum penalty is the lesser of $435 or 100% of the tax required to be shown on the return.

There is just no point in throwing money away, particularly since you can file a simple request for an extension of time to file (Form 4868), which will give you until October 17, 2022 to file the return.  However, in order for this trick to work, the extension form must be filed by the due date for filing the return, April 18, 2022.  Timely mailing is timely filing, so use Certified Mail so you can prove your mailing date.

And don’t forget to file an extension request for your state taxes as well.

“Oh, but it’s so overwhelming, all that paperwork, I should have done it months ago, but now I don’t have the time!”

I don’t want to get too far into the weeds of what minimum effort meets the threshold of a “return”, or whether an amended return can cure a fraudulent original return (in general, it can’t), but if you can make a good faith effort to report all your income and as many of your deductions as you can document in the short time remaining, you have a reasonable chance of avoiding the “failure to file” penalty.  And, as suggested above, you should avail yourself of that reasonable chance.

And all of this applies to the first actual return you file, which could be as late as October 17, 2022.  You only have to make a rough guesstimate of the tax on the extension form, and the extension will be granted even if no tax is paid with the Form 4868.  So in every event, no matter what, file an extension request on time.

“I probably should have mentioned this earlier, but it’s pointless, really, no matter what the bottom line of the return is, I can’t pay my taxes with the return, so isn’t it more or less hopeless?”

Well, no, it’s never hopeless.  An extension of time to file does not extend the deadline to pay, so it’s a good idea to pay something with the Form 4868.  The good news: the failure to pay penalty is much lighter, “only” 0.5% of the unpaid tax per month (or portion thereof) that the payment is late, again with a maximum of 25% of the unpaid tax.  If you do enough to avoid the failure to file penalty, the maximum failure to pay penalty is not reached until the payment is 50 months late.  Payment plans are a bit beyond the scope of this note, but the failure to pay penalty only applies to the actual underpayment for the particular month, so if payments are being made the underpayment on which the penalty is computed is obviously being reduced.

The real points to take away are: the failure to file penalty can be avoided if the Form 4868 is filed on or before April 18, 2022, and the return can be filed, on extension, on or before October 17, 2022; and the failure to file penalty hits harder and gets to the maximum quicker than the failure to pay penalty.

So, at the very least file your extension request, and if you need the assistance of a return preparer in order to file the return by October 17, 2022, I can be helpful in putting you in touch.

Written by E. Morgan Maxwell

E. Morgan Maxwell

Since beginning his own firm, Mr. Maxwell has continued a tax-law oriented practice encompassing a wide range of transactions, planning and dispute resolution. His dispute resolution experience includes involvement at all levels of the Internal Revenue Service (Examinations, Appeals, Collections, Office of Professional Responsibility, the U.S. Tax Court), the Pennsylvania Department of Revenue, the Tax Litigation Section of the Pennsylvania Attorney General’s Office, Pennsylvania Commonwealth Court, Common Pleas Court and local taxing jurisdictions in southeastern Pennsylvania.

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