Question

Explain the tax consequences of either filing no tax return when you had income, filing a fraudulent return, and failing to pay the amount owed to the IRS.

Answer 1

Not filing returns when having an income or filing wrong returns deliberately or not paying any monies owed as tax to the IRS are all forms of tax evasion and comes under the definition of Income Tax fraud. The consequences of these are as follows:

1. Not filing when supposed to: Penalty of 5% of the tax owed per month or part thereof up to maximum of 25% of the tax owed will be charged.Moreover, the tax payer will have to pay penalty up to $ 25000 or be imprisoned up to a period of 1 year. Imprisonment being a criminal charge can be imposed upon taxes due no more than 6 years from the date. However, the penalty being a civil charge can be imposed for taxes due any year without time bar.
2. Willful filing of fraudulent return: Such felonies will be punishable by imposing a penalty up to $ 250,000 (or up to $ 500,000 for Corporations) or rigorous imprisonment up to 3 years. Again the imprisonment is barred by time limit of 6 years.
3. Failing to pay the amount owed to the IRS: The penalty is 1/2% of the tax owed for each month or part thereof subject to the maximum of 25% of the tax due. Same applies if any additional demand is made by IRS and tax payer fails to pay within 21 calendar days from the date of such notice.