What happens if you miss a tax deadline? How long does it take before the IRS begins its collection action to collect your tax balance? How many fees will you have to pay?

Understanding and managing the nuances of tax law isn’t easy.

Understanding and managing the nuances of tax law isn’t easy. Whether you have failed to file your tax return on time, could not make a payment on time, or you are were assessed penalties by IRS, the best thing you can do is seek the assistance of skilled tax attorney.

The team at Milikowsky Tax Law has years of experience navigating complicated tax matters. If you have questions and need clear advice from tax attorneys who have business experience, and can provide value to resolve your matter, contact the team at Milikowsky Tax Law and access our expert resources for handling these situations.

What To Do After You Miss a Tax Deadline

When you’re running a business, it can be difficult to keep track of all the things you need to do — and when — to keep your company safe and in good legal standing. If you’ve missed the official deadline to file your taxes, you’ll need to speak to the IRS as quickly as possible. There will be a penalty for filing taxes late, but the sooner you address this issue, the better chance you have to minimize the amount of penalties you may owe and the collection action IRS can take (i.e. levies on bank accounts, liens, etc.).” The penalty for failing to file a timely return is generally higher than the penalty for failing to pay the full taxes owed. Thus, once you discover your tax returns have not been filed, you should act quickly to gather your records and work with your accountant or CPA to have the returns prepared and filed.

If you’ve missed a deadline, you probably have a lot of questions swirling in your head: How late can you file your taxes? What kind of consequences can you expect for being behind? Who should you contact first? Don’t panic.

Consequences of Missing a Tax Deadline

As soon as you realize that you’re late in paying your taxes, it’s important to seek help as quickly as possible. If you can pay the money owed quickly enough, you can reduce a lot of stress in dealing with the IRS. Even if you respond promptly, you should prepare to face a penalty for filing taxes late. This may include meeting with a trusted tax attorney and your own financial advisor to plan for the financial effects. Browse our resources below to help you understand what happens if you miss a tax deadline and how it will impact your finances.

What To Do If You Can’t Pay Your Tax Bill On Time

If you realize you cannot pay your taxes in full, you do have options, such as:

  1. Request an installment agreement with IRS or the California State tax agency;
  2. Contact IRS or the California state tax agency to request an extension to full pay the liability (not through a long-term installment agreement because you only need a couple extra months).

If you are having a financial hardship, you may qualify for an Offer in Compromise (“OIC”), which is a request to IRS to settle your tax liability for a lesser amount based on a “Doubt as to Collectibility” or “Doubt as to Liability.” These issues involve intricate tax laws, legal issues, and a thorough analysis of a person’s finances (including preparing a bank account analysis and financial statement). If your business owes taxes, the company’s legal tax issues and financial analysis must also be thoroughly analyzed. The best thing you can do is speak to an experienced tax attorney and develop a custom strategy for resolving your outstanding balance with the IRS.

What Are Back Taxes?

Back taxes arise when your personal or business taxes are not paid in full by the due date. For income tax, payroll tax, and sales tax, these can be quarterly and yearly. Over time, they accrue interest, and can also come with a host of other penalties to consider. If you’re wondering what the penalty for filing taxes late might be, back taxes are a common consequence.

  • Read our overview of what back taxes are and how they affect your business.
  • Check out our guide on back taxes and learn how our team can help you resolve them.
  • Browse our expertise and insights on outstanding tax balances, what you need to know about them, and how you can seek professional guidance.

Resolving Your Tax Debt

No one wants an ongoing tax debt to worry about when they are trying to run a successful business. There are several ways to resolve your tax debt, from agreeing to pay back a portion of the money owed each month (i.e. an offer in compromise), to requesting an extension of time to pay. Even if you owe the IRS more than you can afford to pay, there are solutions available — such as an offer in compromise. The best decision you can make is to start with an experienced tax attorney who understands your business and can offer clear solutions to resolve your tax issue.

Image of a calculator IRS in an audit

IRS audits can be a business owners’ worst nightmare: the hassle, the heaps of paperwork, the potentially hefty bill. However, with the right preparation and resources, an IRS audit doesn’t have to be a stressful event. 

Read on for our ultimate guide to IRS audits. We answer all the most common questions to help you navigate an audit as smoothly as possible. Let’s get started.

What is an IRS Tax Audit?

IRS defines an audit as “as a review and examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.”

How Will You Be Notified of an Audit?

You will know if you are selected for an audit if you receive a verified letter in the mail from IRS. They do not call to notify you about your audit.

Why Was Your Business Selected For an Audit?

There are several different reasons your business may be flagged for IRS audits.

Random Checks

Some businesses are audited in random checks. However, the chances of a random audit are low. Most taxpayers have less than a 1% chance of receiving a random audit check. 

Incorrect Tax Filing Information

IRS runs tax returns through their Discriminant Information Function (DIF) system to track industry benchmarks for each industry and tax bracket. The DIF system also checks for incorrect tax filing information. Any discrepancies in tax forms, or if the form isn’t complete, may trigger an IRS audit.

Other Reasons Businesses May be Audited by IRS

People are more susceptible to an audit if they:

  • Have a home-based business
  • Have a cash business 
  • Have foreign assets 
  • Have large numbers of cash transactions 
  • Claim a disproportionate number of deductions 
  • Are self-employed
  • Issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit

Learn how to avoid IRS red flags from cash transactions, here.

How Long Do You Have to Respond to an IRS Audit?

You have 30 days to reply to the initial audit letter.  

What if You Need More Time to Respond to an IRS Audit?

Your attorney can help by advocating for more time with the IRS agent. We don’t recommend hesitating on responding to an IRS letter on your own, IRS is likely to offer extensions without assistance from an experienced tax attorney who can help present your case.

What Do You Need to Provide in an Audit?

According to IRS, they may ask for copies of:

Receipts

We recommend presenting receipts by date with notes of how they were used by or relate to your business.

Bills

Business owners can include dated bills with information such as the name of the organization that received the payment as well as the type of service it provides.

Canceled checks 

Business owners can organize canceled checks with copies of the bills they paid and any applicable employer reimbursement.

Legal papers 

Include a description of what the case was about, when it happened and how it relates to your business, credit or deduction. Examples include:

  • Divorce settlements including custody agreements
  • Criminal or civil defense papers
  • Property acquisition
  • Tax preparation or advice
  • Loan agreements – Include a copy of the original loan with the following:
    • Names of the borrowers
    • Location of the property
    • Financial institution making the loan
    • Amount borrowed
    • Terms (the number of months to pay)
    • Settlement sheet
    • If the loan was from an institution, include an end of tax year statement indicating interest paid
    • If the loan was not from an institution, provide a statement from the payee indicating the interest paid that year as well as the payee’s address and Social Security number
    • Provide a break-down of how you used the money
  • Logs or diaries
  • Tickets
  • Medical and Dental records
  • Medical savings account statements
  • A copy of a handbook or other statements showing benefit and reimbursement policies
  • Physician statements
  • Capital improvement records for medical purposes including appraisals of the property before and after the improvements
  • Contract for attendant care
  • Theft or loss documents
  • Insurance reports detailing the nature of the loss or damage
  • If not insured, copies of fire department or police reports on the loss, theft or accident
  • Photos or video showing the extent of the damage (if available)
  • Appraisal from a qualified adjustor showing fair market value of the property before and after as well as an estimate of the damage
  • Brief explanation of the loss
  • Employment documents
  • Schedule K-1

You can view a list of records IRS may request here.

How Long Do Audits Take?

The time it takes to conduct an audit depends on the case. It fluctuates depending on:

  • The tax reporting error
  • Communication between the person being audited and IRS officer
  • When and whether the right information is provided to IRS

How Far Back Can IRS Audit Your Return?

IRS audits tax returns from the past three years.  However, audits are typically from the past two years. 

IRS will not look for information older than three years unless they find discrepancies within the audit they are conducting. Most audits do not look for information past six years. In criminal cases, IRS can look back more than nine years.

Facing an IRS Audit?

If you or someone you know received an audit letter from IRS, reach out to our expert team at Milikowsky Tax Law. We have over a decade of experience working with IRS and tax audits and are experts in defending business owners in the face of IRS or other government agency audits.

Read on to learn how to respond to an IRS audit in 2022, here.

Messy load of ring binders that contain tax documents and forms, accounting and payments concept

DO YOU HAVE UNFILED TAX RETURNS?

SPEAK WITH A SKILLED SAN DIEGO TAX LAWYER TODAY

Taxes are a burden all citizens share, but it’s easy to let the responsibility get away from you. The government estimates that there are nearly $300 billion uncollected taxes in America from unfiled tax returns.

Not filing has its consequences, though. The IRS can identify citizens who haven’t filed and assign damaging, cumulative fees to individuals who fail to follow these obligations. There is time, however, to get your paperwork in order and minimize any penalties coming to you.

At Milikowsky Tax Law, we’ve helped countless clients get their tax responsibilities in order and correct their status. The clock is always ticking, which is why we urge you to contact us today to receive help from an experienced San Diego tax attorney.

PENALTIES FOR NOT FILING

Many of those who fail to file their taxes hope that it’ll be easy for their inaction to go unnoticed, but the IRS has many measures in place to identify who has not filed, swiftly issuing penalties when it is an obvious infraction.

Penalties for federal unfiled tax returns include:

  • A failure-to-file penalty of 5% of the unpaid taxes for every month overdue (up to 25%)
  • Filing after 60 days has a penalty of either 100% of unpaid tax (with a minimum of $135)

Penalties for not filing California tax returns include:

  • A failure-to-file penalty of 5% of the unpaid taxes for every month overdue (up to 25%)
  • In the case of fraud a 15% penalty a month, with a limit of 75%
  • Filing late has the penalty of 100% of the tax owed on the return, with a minimum of $135

OUR SAN DIEGO IRS ATTORNEY IS READY TO HELP YOU FILE TODAY

Here at Milikowsky Tax Law, we know that facing IRS penalties can be overwhelming. Time and time again, we’ve helped clients make swift, accurate action in filing overdue unfiled tax returns, halting any further penalty and helping them move on with their lives. We’re ready to do the same for you and your unfiled return matters.