For several weeks leading up to October 15, 2015 accountants were busy preparing tax returns for people who had not filed their 2014 tax returns. While U.S. tax returns are due by April 15th for the previous year, many people need additional time to prepare their returns. In order to get the additional time a request for extension and payment of anticipated tax must be sent to the IRS.
If the taxes are not paid when the request for extension is filed, a penalty of 1/2 percent per month is imposed. This is called a failure to pay penalty. This means that if taxes were not paid, a person who files and pays the tax by October 15th will be charged an additional 3% on the amount that was paid late. In addition, the person will be charged interest by the IRS. If the return is not filed within the extension period, there is also a failure to file penalty of 5% of the taxes due for the first 30 days after October 15th and 5% per month thereafter up to 25%. These penalties are obviously harsh and yet there are worse consequences. If the IRS believes the failure to file is due to fraud, then the failure to pay penalty and the failure to file penalty increases. The failure to file penalty goes from 25% to 75% of the tax due.
The failure to timely file the tax return can have far more serious repercussions. It is a federal crime if one willfully fails to timely file yearly income tax returns. Each year is a separate crime. For example, if tax returns are not filed for four years and the IRS believes that the failure to file was willful, a person could be punished by a maximum of four years in federal prison.
The difference between simply paying money as a civil penalty or being subjected to possible prison, depends upon whether the IRS believes the person acted willfully. What constitutes willful behavior is initially determined by an IRS criminal investigator. The general meaning of willful in the tax laws is that a person knows of the legal requirement to file a tax return and intentionally fails to file the return. If a return is not filed because of mistake, negligence or even a misunderstanding of the law, it is not willful. However, a person may be unsuccessful in convincing the government the failure to file was not willful and then must convince a jury in a criminal trial.
The IRS claims that the income tax system of the United States is voluntary. In spite of this claim, the U.S. Department of Justice will prosecute individuals who the IRS believes willfully fail to comply with this voluntary system. Over the years there have been many high profile prosecutions for willfully failing to file income tax returns. Wesley Snipes and Arthur Jones, the founder of Nautilus Sports Equipment, are just two examples. Mr. Snipes was convicted in Federal Court in Ocala and sentenced to three years in federal prison. Mr. Jones was tried in Federal Court in Orlando and the jury returned not guilty verdicts on all counts. In Mr. Jones’ case, the defense was able to prove that he did not act willfully.
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