Failure to file a tax return has a number of important implications that should not be overlooked. These implications extend from civil penalties and late fees to criminal prosecution. Such issues can be avoided by ensuring that the proper paperwork is filed, regardless of whether you are able to pay your taxes at the time the return is due.

One major misconception is that not filing is the same as not paying; this is not the case. Failure to pay your taxes will result in civil penalties, fees and ultimately an IRS collection proceeding. However, failure to file your return is both a civil and a criminal matter, and may result in criminal prosecution as a misdemeanor under Internal Revenue Code (IRC) 7203, or as a felony for more serious cases of willful neglect to file under IRC 7201. The latter can include a prison term of up to five years, and while only the most egregious offenders will serve lengthy prison terms, it is important to understand that filing your tax return will allow you to avoid criminal prosecution even where you are unable to actually pay your taxes.

There are also a number of financial reasons to file your return on time, whether or not you are able to pay your tax bill. First, failure to file a timely return will prompt the IRS to file a Substitute for Return (SFR), which computes your tax liability in the best interests of the government, i.e. with the fewest credits and deductions in your favor. 26 U.S.C.A. § 6020. In other words, the IRS will calculate your taxes as if you did everything your accountant told you not to do when filing your taxes! By filing on time you can avoid this. You can also avoid a late filing penalty by filing on time, which is a monthly penalty capped at approximately 25% of the overall amount due.  26 U.S.C.A. § 6621. Finally, you can risk losing a tax refund for failing to file your taxes on time.

The problems you will face for failure to promptly file a tax return are numerous, some of which are not included in this discussion, e.g. limitations on carrying forward losses, inability to file revised return, and can even extend to criminal prosecution. The bottom line is that you have a strong incentive to file your tax return on time, even if you cannot pay your taxes, and you should contact an experienced attorney who can help you navigate these and other important tax law issues.