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Failure to File and Pay Tax Penalties: Understanding the Consequences

Posted by Kamyar Mehdiyoun, Esq. | May 20, 2023

What is Failure to File and Pay Tax Penalties?

Failure to file and pay penalties refers to the consequences that individuals or businesses may face when they neglect to file their tax returns or fail to pay the taxes they owe on a timely basis. When tax obligations are not met, it not only violates tax laws but can also significantly impact your finances. It is essential to fulfill your duty of timely filing and paying taxes in order to ensure compliance with the tax regulations enforced by the Internal Revenue Service (IRS) and by state tax agencies.

The Consequences of Failure to File and Pay Tax Penalties

In order to deter taxpayers from filing or paying their taxes late, the IRS imposes stiff penalties for late filing or payment. In addition, delinquent taxpayers are subject to interest on the underpayment amount. In 2024, the IRS's annual interest rate on late payments was 8%. Maryland interest rate for late tax payments is significantly higher. Therefore, in many cases the interest and penalty exceed the principal tax amount. It should be noted that assessment of interest on late tax payments is statutory. This means that the IRS is obligated to assess and collect the interest which may not be abated.

In exceptional circumstances, taxpayers can avoid payment of penalties by showing ‘reasonable cause'. For example, assume that on April 15 of a given year when tax returns are due, a taxpayer is hospitalized and is therefore unable to file his Form 1040 on time. This taxpayer may avoid payment of penalty for late filing if he files his tax return after he has been discharged from the hospital. However, financial inability to pay the tax never constitutes ‘reasonable cause'. 

If the IRS or taxing authorities in Maryland, Virginia or Washington, D.C. have assessed financial penalties against you for failure to file or pay your taxes on time, contact Kamyar Mehdiyoun, Esq. for a free consultation by calling (240) 499-8333

About the Author

Kamyar Mehdiyoun, Esq.

Kamyar Mehdiyoun, holds a Master of Law (LL.M.) degree in taxation from Georgetown University Law Center and focuses his practice on tax law. In 2003, he received the Award for Excellence in Tax Practice and Procedure from Georgetown. He also holds a Certificate in Employee Be...

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