Category Archives:Failure to Pay Penalty

If you Owe Back Taxes, You May Have to Change Your Travel Plans

President Obama signed a highway and transportation spending bill titled “Fixing America’s Surface Transportation Act” or the “FAST Act” (P.L. 114-94) which takes effect January 1, 2016. The legislation contains two significant back tax collection provisions of which you must be aware. First, is a new tax code section authorizing the government to revoke passports if you owe back taxes. Second, is a provision directing the government to hire private tax collectors.

How can the Government Deny or Revoke a U.S. Passport if I Owe Back Taxes?

The FAST Act adds Section 7345 to Title 26 of the US Tax Code. The new section authorizes the government to deny the application for a new passport or renewal of an existing passport if you owe more than $50,000 in back taxes of “seriously delinquent tax debt.”

What Does the Government Consider a Seriously Delinquent Tax Debt that can lead to the Revocation of my Passport?

The term seriously delinquent tax debt is defined as back taxes in which the government files a Federal Tax Lien or taxes in which the government has issued its prerequisite to levy.

Excluded from the definition of a seriously delinquent tax debt is a tax being paid under an installment agreement, offer in compromise, or if collection is suspended under a collection due process hearing.

The passport suspension rule is similar to New York’s enforcement provision with respect to the suspension of driver’s licenses for unpaid taxes. As long as you are working on or have executed a tax settlement, payment plan, or some alternative to collection, the government will not suspend your passport. The key is opening the lines of communication with the IRS and being proactive in resolving your tax debt.

Can I enter the US if I Owe Taxes?

Yes, under the FAST Act the government could revoke a passport upon reentry into the U.S. If the government decides to revoke a passport, they can limit a previously issued or issue a limited passport exclusively for return travel to the United States.

Congress added a provision permitting the Secretary of State to issue a passport, in emergency circumstances or for humanitarian reasons.

The Hiring of Private Tax Debt Collectors

The FAST Act directs the IRS to contract with private collection agencies. The government hired private tax debt collectors twice in the past and, according to the IRS and Taxpayer Advocate, the effort was ineffective at collecting back taxes. Congress ignored both the IRS Commissioner and Taxpayer Advocate because the use of private tax collectors projected revenue of $2.4 billion over 10 years.

Private tax debt collectors will be used on inactive tax receivables exclusively. The FAST Act defines an inactive tax receivable as a case the IRS has removed from its active inventory because of a lack of resources or inability to locate the taxpayer, a case where more than 1/3 of the collection statute of limitations period has elapsed and the case has not been assigned to an IRS employee, or a case where more than 365 days have passed without interaction between the IRS and the taxpayer.

The FAST Act precludes the IRS from contracting out cases where the taxpayer:

  • has a pending or active installment agreement or offer in compromise;
  • proposed innocent spouse relief;
  • is under examination, litigation, criminal investigation, or levy;
  • is under age 18; and
  • is in a combat zone or deceased.

Therefore, the cases which will be delegated to private debt collection agencies are finite taxpayer accounts.

The tax debt collection agencies must adhere to the Fair Debt Collection Practices Act.

Contact Tax Attorney Todd S. Unger, Esq. Today

The FAST establishes a Special Compliance Personnel Program Account which is dedicated exclusively to fund IRS collection personnel such as the Automated Collections Unit (ACS) and Revenue Officers.  Therefore, if you have not addressed your delinquent tax debt, then you must act now. The key to avoiding the enforcement provisions of the FAST Act is making a proposal to such as an offer in compromise, applying for innocent spouse relief, requesting an appeals hearing, installment agreement, filing bankruptcy or challenging the tax debt owed. The Law Offices of Todd S. Unger can help you stop IRS enforcement action and resolve your back taxes. There is not time to wait. The provisions of the Fast Act are effective January 1, 2016. To avoid enforcement action, speak to tax attorney, Todd Unger today (877) 544-4743.

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Owe New Jersey Back Taxes? The NJ Division of Taxation Offers a Way to Resolve Unpaid Tax Debt with No Penalties

NJ Back Taxes ResolutionThe New Jersey Division of Taxation has offered businesses and individuals a way to resolve back taxes from 2005 through 2013 at a reduced cost. The details of the plan are as follows:

  • Most of the penalties that were assessed to your account will be reduced to zero.  The Amnesty Penalty (5%) imposed on taxes due on or after 1/1/2002 and before 2/1/2009 is still applicable.
  • Interest will be calculated only on the tax and the reduced penalties.
  • The 10% recovery fee which is imposed on each tax liability that is forwarded to NJ’s outsourced, collection unit, Pioneer, is waived.
  • The 10% cost of collection fee charged for filing a Certificate of Debt (Judgment) may be eliminated.

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Question: Should I file my taxes if I can’t pay?

Answer: Yes!  This is a question that that I’m always asked around tax season and the tax extension deadlines.

Putting aside that it is a misdemeanor to fail to file a tax return and a felony for the willful failure to file a tax return, it can be financially devastating to not file on time.

One of the biggest IRS penalties is the failure to file a tax return by its due date plus extensions.  The failure to file penalty runs at 5% per month up to maximum of 25% of the total tax due.  For example, if the tax return is reporting a balance $100,000.00 and its five months late, the IRS will assess an additional $25,000.00 in tax penalties.  Therefore, by filing the return timely, you would avoid criminal exposure and the costly failure to file penalty.

In addition to the failure to file penalty, the IRS would assess the failure to pay penalty on the amount owed plus statutory interest.  The failure to pay penalty is assessed at .5% per month up to a maximum of 25% for the late payment of tax.  The failure to file penalty is reduced by the failure to pay penalty when both penalties run concurrently.  If the government issues a notice of intent to levy and you do not pay within 10 days from the notice, then the penalty increases to 1% per month.  Therefore, if you have any money available, even if the amount is less than what is reported, then submit the funds with your tax return.  That way, you reduce the exposure to the failure to pay penalty which is based on the amount of back taxes owed.

In addition to the tax penalties and the taxes owed, the IRS assesses statutory interest on both the tax reported and the tax penalties assessed.  In the aggregate, penalties and interest could inflate your back taxes by 55%-75%.  Therefore, by timely filing and paying what you can, you can significantly reduce the amount of back taxes owed.

The disadvantage of filing a tax return without payment is that the IRS collection cycle will begin.  However, if you are proactive, you can negotiate for additional time to pay taxes, request an IRS payment plan, place your account in forbearance (i.e. currently not collectible, CNC, or Status 53), apply to settle your tax debt for less than what is owed (i.e. offer in compromise or OIC), or propose to the IRS another alternative that would resolve your back taxes.

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The IRS is Closed... Now What?

Because Congress failed to approve a 2014 federal budget, the IRS has curtailed its operations.


If you have a question, do not bother contacting the IRS.  The IRS website states that no customer service will be available and IRS walk-in assistance centers are closed.

If you have a scheduled tax audit, meeting with a revenue officer, follow up call with ACS or the Taxpayer Advocate, your meeting is cancelled.  The IRS website states that personnel will reschedule those meetings at a later date.

During the government shutdown, the IRS reports that automated IRS notices will continue to be mailed. 

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Fat Joe Convicted of Tax Evasion in Newark, New Jersey

Fat Joe Tax EvasionNew Jersey-based rapper Fat Joe pleaded guilty yesterday to criminal charges for failing to file his federal income tax returns for 2007 and 2008. Joseph Antonio Cartagena, better known as Fat Joe, appeared in Newark’s federal court before Magistrate Judge Cathy Waldor and admitted to failing to file his taxes for the years of 2007 and 2008.

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Dolce and Gabbana to go on Trial for Tax Evasion

Dolce & GabbanaIn December, co-founders of the famous high fashion label Dolce & Gabbana will go on trial for tax evasion in their native Italy.

Domenico Dolce and Stefano Gabbana are accused of selling their business to Gado Srl, a Luxembourg-based holding company, in 2004. The pair are said to have created the company in order to carry out a plan not to pay taxes, Women’s Wear Daily reports.

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Beanie Sigel Rapper Sentenced to 2 Years for Tax Evasion

Philadelphia rapper Beanie Sigel, born Dwight Grant, was sentenced to two years in federal prison stemming from charges that he failed to file income tax returns. The rapper began serving his sentence on September 12, 2012.

Sigel was accused and convicted of failing to file tax returns from 2003 to 2005. He was reported to have earned over $2.2 million dollars from 1999 to 2005 and owed a total of $728,536 to the federal government. He was ordered to pay all back taxes and penalties and will endure a year of supervised release once his sentence is completed.

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Civil Fraud Penalty

When filing a joint return, each spouse is on the hook for the full amount of the tax, penalties, and interest arising out of their joint return regardless of the amount of their separate taxable income.  There is one penalty that is carved out of the joint and several liability rule and that’s the civil fraud penalty.

Unlike the failure to file, failure to pay, or accuracy related penalty, civil fraud requires the IRS proves by clear and convincing evidence, not 100% sure, beyond a reasonable doubt, but pretty, pretty sure, that each taxpayer had intended to evade taxes that he or she knows are due and owing.  If successful, civil fraud will add 75% to any amounts owed to the IRS as a result of the tax deficiency.

When a joint return is filed, the civil fraud penalty applies only to the spouse responsible for the underpayment (or portion thereof) attributable to fraud.  The IRS must show that each taxpayer acted with specific intent to evade tax that the taxpayer knew or believed he or she owed by conduct intended to conceal, mislead or otherwise prevent the collection of the tax.  Fraud is never presumed and is a factual question to be decided based on the entire record.  For each tax year, it must be established by independent evidence.  In the case of a joint return, intent must be established for each spouse separately.  Therefore, the fraud of one spouse cannot be used to impute fraud by the other spouse.

Most of the time, fraud is proven circumstantially.  Courts have developed several indicia also known as badges of fraud. These badges of fraud, include the following:

(1) understatement of income (e.g., omissions of specific items or entire sources of income);
(2) failure to report substantial amounts of income received;
(3) accounting irregularities (e.g., two sets of books, false entries on documents);
(4) acts of the taxpayer evidencing an intent to evade tax (e.g., false statements, destruction of records, transfer of assets);
(5) a consistent pattern over several years of underreporting taxable income;
(6) implausible or inconsistent explanations of behavior,
(7) failure to cooperate with the examiner;
(8) concealment of assets;
(9) fictitious or improper deductions (e.g., overstatement of deductions, personal items deducted as business expenses).

A taxpayer’s intelligence, education and sophistication are relevant in determining fraudulent intent.  Although no single factor is necessarily sufficient to establish fraud, a combination of several of these factors may be persuasive evidence of fraud.

The Law Offices of Todd S. Unger, Esq. is a boutique law firm devoted exclusively to resolving tax controversies.  If you’ve been the target of a government investigation and need defense against the accusation of tax fraud, then contact us immediately.

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The IRS is Killing Lauryn Hill Softly

I’m sorry Lauryn Hill, but even people that live “underground” pay taxes.  I’m referring to Lauryn Hill’s excuse to not file her tax returns because she was claiming to live “underground.” You never saw Jim Henson’s Fraggles in hot water with the IRS because, despite living underground, Fraggles filed their tax returns timely.

The former Fugees member has been charged with three counts of misdemeanor failure to file taxes from 2005 to 2007 on nearly $1.6 million in earnings.

Under the tax code, the elements to successfully prosecute Lauryn Hill of willfully failing to file an income tax return, misdemeanor are   (1) Willfulness; (2) Requirement to file a return, pay a tax, maintain records, or supply information; and (3) Failure to file a return, pay an estimated tax or tax, maintain records, or supply information.

Each of the counts carries a possible sentence of one year in prison plus a $100,000 fine. Hill will appear in a Newark, New Jersey court after being charged by the U.S. Justice Department.  In cases where an overt act of evasion occurred, willful failure to file may be elevated to Tax Evasion, a felony.

The civil penalty for the failure to file is 5% of the net tax due for each month or part of a month the return is late. The maximum penalty that can be assessed for late filing penalty is 25% of the net tax due.  In the case of fraudulent failure to file, the penalty amount for each month is 15% of the net tax due, and the maximum penalty that can be assessed is 75% of the tax.  Normally, the fraudulent failure to file penalty is assessed against taxpayers who did not file in an attempt to evade tax.

If you have years of unfiled tax returns and need immediate assistance, the please contact Tax Attorney, Todd S. Unger, Esq. for a confidential consultation.

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