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Learn More About Unfiled Tax Returns at easyIRS.com!

It’s no fun when the IRS adds penalties and interest to your balance due. In fact, it can feel like they are just trying to add insult to injury. What the IRS is actually trying to do is encourage voluntary compliance with American tax laws. Even the IRS knows that certain events are out of your control and may cause you to file a return late or make a payment late. If this is the case, you may qualify for penalty abatement due to reasonable cause.
Reasonable Cause?
By claiming reasonable cause for noncompliant behavior (not filing, not paying, etc), you are saying that there was no willful neglect on your part, i.e. that you didn’t do it on purpose. Reasonable cause is the set of events or circumstances, specific to each individual’s situation, which acts to explain the noncompliant behavior of an individual. A good layman’s definition of Reasonable Cause is that there were circumstances outside of your control, or that made it virtually impossible to, do what you were supposed to do (file, pay, etc.).

The IRS recognizes the following sixteen arguments, or possible reasons, for reasonable cause:

1. Death:
   • If there was a death in your immediate family (such as spouse, sibling, parent, grandparent, or child) that prevented you from complying with the IRS, you may qualify for penalty abatement. You should be prepared to explain to the IRS who died, the date the death occurred, and exactly how the death prevented you from meeting your obligations to the IRS.You will need the following to support your claim:
     • Copy of death certificate
2. Serious Illness:
   • If either you or an individual in your immediate family had a serious illness which prevented you from complying with the IRS, you may qualify for penalty abatement. A serious illness is usually one which requires some type of continual care, either at a hospital/clinic or personal care at your home.You should have the following documentation to support your claim:
     • Doctor’s statement detailing and documenting your illness
     • Medical bills
3. Unavoidable Absence:
   • An unavoidable absence means that you were not at your residence and could not comply with the IRS, at no fault of your own. Valid examples of this are incarceration, detainment in a foreign country, or deployment to a Combat Zone.You should have the following documentation to support your claim:
     • Proof of incarceration
     • Copy of passport showing dates you left and entered the country
     • Documentary proof that you were detained
     • Proof that you were in a Combat Zone
4. Bankruptcy:
   • If you were in bankruptcy when a failure to pay penalty was assessed, you can request penalty abatement for reasonable cause. Bankruptcy will not be considered as reasonable cause for a failure to file penalty.You should have the following documentation to support your claim:
     • Bankruptcy filing documents
5. Inability to Pay Due to Extreme Financial Hardship:
   • In order to qualify for reasonable cause due to an inability to pay because of extreme financial hardship, you must show the IRS that you would have suffered a substantial financial loss if you had paid the tax by the due date. In most cases, this financial hardship is due to an unexpected event. An inability to pay due to extreme financial hardship will not be considered as reasonable cause for a failure to file penalty.You should have the following documentation to support your claim:
     • Bank statements showing the amount in your accounts when payment was due
     • Statements/bills showing the unexpected cost that was incurred
6. IRS Error:
   • If the IRS made an error in computing or assessing tax on your account or crediting your account with a payment, you can request penalty abatement due to reasonable cause. You will have to show the IRS that you did comply with the law from the beginning and the IRS did not recognize that fact.You should have the following documentation to support your claim:
     • IRS Notice or Letter showing the error
     • IRS Publication showing the error
     • Specific citation of rule or correct application from a law source
7. Incorrect Written Advice from the IRS:
   • If an IRS employee issued your erroneous advice in writing, the IRS will abate the penalty that resulted from you following the advice.You should have the following documentation to support your claim:
     • Copy of your request for advice
     • Copy of IRS response to your request
8. Incorrect Verbal Advice from the IRS:
   • If an IRS employee gives you erroneous advice either over the phone or in person, the IRS may abate the penalty that resulted from you following the advice. This type of reasonable cause is not as effective as having incorrect written advice because it is essentially your word against the IRS.You should have the following documentation to support your claim:
     • Notation of your question to the IRS
     • Documentation regarding the advice provided by the IRS
9. Postal Service Error
   • If the United States Postal Service lost your mail or made an error concerning the delivery of your tax return or tax payment (delivering your mail to another taxing agency for example), you can request that the associated penalty be removed due to reasonable cause.You should have the following documentation to support your claim:
     • Statement from USPS concerning the error
10. Tax Professional Error:
    • Reliance on a tax professional provides reasonable cause only when it is associated with a technical or complicated tax issue, such as an accuracy related penalty. Failing to file or pay your taxes on time cannot be excused because of advice from a tax professional.You should have the following documentation to support your claim:
      • Copy of incorrect advice
      • Copy of document showing the error made
11. Lack of Forms:
    • If you did not have the correct forms or schedules needed to complete your return, the IRS may abate your penalties due to reasonable cause. However, with the accessibility to forms through the internet and through most public libraries, this is not one of the stronger arguments for reasonable cause. The IRS will also take into account whether or not you filed an extension to receive extra time to get the forms.You should have the following documentation to support your claim:
      • Copy of extension filed
12. Inability to Obtain Forms:
    • An inability to obtain forms indicates that you tried to get the forms needed to complete your tax return, but could not, for reasons outside of your control. Most often, this includes not receiving earning statements from an employer.You should have the following documentation to support your claim:
      • Copy of extension filed
      • Copies of letters written and/or received in effort to obtain documentation
13. Fire:
    • A fire that destroyed your records may be reasonable cause for failing to comply with the IRS. The IRS will consider the timing of the fire in relation to when your return or payment was due and whether or not you had any other copies of your records to fulfill your tax obligation.You should have the following documentation to support your claim:
      • Copy of insurance claim
      • Report from fire department
14. Theft:
    • If your records were stolen and you consequently could not comply with the IRS, you have reasonable cause for failing to comply with the IRS. If you misplaced or lost your documents, however, this is not the same as having your records stolen – misplacement is under your control; having your records stolen is not.You should have the following documentation to support your claim:
      • Copy of insurance claim
      • Copy of police report
15. Disaster Area:
    • If you are located in an Official Disaster Area, the IRS usually issues special instructions for requesting penalty abatement.You should have the following documentation to support your claim:
      • Copy of insurance claim
16. Unknown Filing Requirement:
    • If you did not know that there was a filing or payment requirement (and could not reasonably be expected to know), you may have reasonable cause for failing to comply with the IRS. You should be able to show the IRS that you did make a reasonable effort to comply with any requirements you were aware of.You should have the following documentation to support your claim:
      • Documentation showing when the new requirement went into effect
17. Tax Law Change:
    • A recent tax law change of which you were unaware (and could not reasonably be expected to know) can provide basis for reasonable cause.You should have the following documentation to support your claim:
      • Citation of tax law

If you aren’t sure whether or not there are penalties on your IRS account, IRS Coach(tm) - Live Edition can find out for you. It will also tell you the specific steps to take to request penalty abatement from the IRS.

If you have yet to file your tax return for 2006, the Internal Revenue Service has good reason for you to do so, in fact, they have 1.3 billion reasons! You need to act fast though, in order to claim your unpaid refund.

According to the IRS, in an announcement dated March 2nd 2010, almost 1.4 million people could be due a refund on their 2006 tax return if they file it by April 15th, 2010. A total of $1.3 billion waits for American taxpayers who have not yet filed their 2006 tax return.

Here are some facts that you need to know about filing delinquent tax returns:

1. Delinquent tax returns cannot be electronically filed, so the 2006 tax return must be postmarked by April 15th to count as filed by the deadline.
2. The IRS will only issue refunds for the past three years – if you file your 2006 return after the deadline and are due a refund, that refund automatically becomes the property of the United States Treasury.

Some people do not file a tax return because their income does not require them too, however, by not filing they are missing out on possible refunds. If you qualify for any refundable credits (such as the Earned Income Tax Credit or, exclusively for 2006, the telephone tax refund credit) or had any withholding throughout the year, it may be in your best interest to file a return.

Keep in mind that your refund will be held by the IRS if you have not filed a tax return for 2007 or 2008. The IRS can also hold your refund if you have other outstanding debt obligations.

If you do file your 2006 return, make sure that you have selected the right form and filing status for your situation in 2006… (for example if you were married then but not now). You should also review your return to ensure there are no mistakes – doing so will prevent any unnecessary delays while the IRS processes your return.

Anyone can make a mistake and the IRS recognizes this fact. If you don’t file a return by the deadline, the IRS is not going to automatically assume that you are trying to evade taxes. But if you ‘forget’ to file your return for multiple years, you may be forced to deal with the Criminal Investigation division of the IRS-and you really don’t want to.

By failing to file a tax return, the following may happen:

• The IRS may file your return for you: if the IRS files a Substitute for Return, it will be prepared in the best interest of the Treasury, not you. This means you won’t be given the tax benefits of a Married Filing Joint return (if you qualify) and you won’t be getting credit for anything beyond the standard deduction.
• You will be charged a Failure to File penalty: the IRS will add a 5% penalty for each month (and part of a month) that your return is late, based on the balance due. This can add up to a total of 25% of the balance due if you don’t file your return.
• You may miss a refund due: the IRS only has to issue refunds for the past three years. If you file a return and are due a refund, but file the return more than three years after the due date, your money is gone.
• You don’t get credit for Social Security: if you are self-employed, the Social Security Administration calculates your benefits based on the self-employment tax you report on Form 1040. If you fail to file a tax return, the Social Security Administration has no way to give you credit.

Going to jail is not one of the possibilities listed above because the IRS usually does not recommend criminal prosecution for failing to file a tax return IF the individual voluntarily files, or makes arrangements to file, the missing tax return(s). If you miss the deadline and file your return(s) late, you may have to pay some or all of the penalties listed above, but the IRS will not come knocking on your door.

Individuals who repeatedly fail to file their required tax returns, or pay their tax liability, will be paid a visit by a Special Agent of the CI division. In the most extreme cases, CI will then refer the case to the United States Attorney’s office.

If you do make it to the CI division, your chances of getting off without jail time aren’t so good. .. in 2010, 84.4% of the individuals that the Criminal Investigation Division has recommended for prosecution were sentenced to prison. The average prison term for those individuals is a little over four years – a long time to think about whether or not failing to comply with the IRS is really worth it.

Preparing your tax return is anything but fun, and it’s rarely easy. Play it safe: do not send your return to the IRS, without checking to make sure that you haven’t made one of these all too common errors:

Math Error
This is one of the easiest mistakes to make: adding or subtracting incorrectly on your tax form(s). Don’t rush – being in a hurry to get it in by April 15th can cause mistakes. Maybe you just don’t want to deal with it anymore, but rushing through simple math could cause you serious problems. Be sure to review everything you enter for correctness.

Computation Error
Like a math error, computational errors are small mistakes that can cost you big. Make sure that you have reported your tax correctly. Keep in mind that the tax table included with the instructions can be hard on the eyes! To accurately compute your tax, you must have computed both your Adjusted Gross Income and Taxable Income directly: be sure that they are right.
Credits and payments are often computed incorrectly, as well, so pay extra attention to your withholding and Estimated Tax Payments, the Earned Income Credit, your child and dependent care credits, and education credits. If any of these are incorrect or you have claimed too much, the IRS will adjust them for you.

Missing and/or Incorrect Social Security Numbers
If you leave your, a spouse’s, or a dependent’s Social Security Number (or other type of Identification Number) blank, the IRS will not accept your return until it has been reported-and they could charge you a penalty for leaving it off. Just as important, make sure that you enter the number exactly as it appears on the Social Security card-a mismatched Social Security Number will delay processing of your return as well.

Selecting the Wrong Filing Status
There are five filing statuses that you can select from on Form 1040: you must choose one that applies to your situation. Remember that you cannot choose a status that you do not qualify for just because it gives you a better tax rate. Most people incorrectly file as Head of Household, when they should really file as Married Filing Separate. Some people will qualify for more than one filing status—if this is the case, prepare a return with each filing status and use the one that gives you the lowest tax.

Omitting Forms and/or Schedules
If a form or schedule is required to report income and/or expenses, be sure to include it with your return. The IRS will not process your return until all of the needed forms and schedules are turned in, completed. Make sure everything that needs to be sent with your return is included. Each individual form or schedule has its own set of instructions – review each one for so that you don’t miss any special instructions.

Omitting Income
This one will cost you. If you file a return that does not match the income records at the IRS, the IRS will adjust your tax for you, and issue a penalty for 20% of the difference. The way to avoid this is to make sure that you report ALL of your income. Even if you won’t get a 1009-MISC or W-2, if you know you had income, you must report it. If you don’t have your records, or won’t have them in time for April 15th, file an extension, so that you can file a return when you are sure that you have everything you need for an accurate return.

Incorrect Account Number for Direct Deposit of Your Refund
If you enter an incomplete routing or account number, it will cause you to receive a paper check from the IRS, not a direct deposit into your bank account. This will delay your refund by several weeks. If you enter the wrong number and your financial institution accepts the transfer from the IRS, someone else will receive your refund! At that point, you will have to deal directly with the bank to recover your money. Make sure that you have entered your account and routing numbers correctly!

Forgetting to Sign and Date Your Return
This may seem simple enough, but people send their return in without signing it! You MUST sign and date your return when you mail it in to the IRS. If you are filing a joint return, both husband and wife need to sign the return-and only under rare circumstances is one spouse allowed to sign for the other.

Filing Late Without an Extension
The IRS wants you to file your return on time—they even grant you a six-month extension if you need it, no questions asked. If you think that you won’t have your return to the IRS by April 15th, go ahead and file an extension (and save yourself a late filing penalty in the process). If you do, make sure you file your return by October 15th-there are no additional extensions.