"Betrayed," an HBO documentary of Joe Louis, chronicles how the I.R.S. literally stalked and garnisheed most of this American icon's income until he married an attorney who was able to negotiate a fair settlement. To this day, one of the major reasons people, celebrities in particular, experience financial difficulties results from not paying income taxes.
Most recently, Wesley Snipes and let's not forget another heavy weight champion Mike Tyson. However, tax liens are not limited to the rich and famous. If you are considering or have not filed taxes in a few years it could be a costly mistake and here's why -- PENALTIES!
Here's a primer on the on the types of penalties that the I.R.S. can levy ...
Failure to File
Let's take the first penalty----failure to file. According to the I.R. S. most folks who don't file actually would have received a tax refund. You only have three years to file for a refund so you could be leaving money on the table. If you are someone who procrastinates you can also file for an extension. You will need to send the I.R.S. a check for what you believe you owe. The failure to file penalty is 5% per month or a maximum of 25% on the amount owed.
Failure to Pay
If you don't file and owe money the penalties on the back taxes can really add up. The amount is 0.5% per month until the balance is paid in full. The I.R.S. recommends that you file and negotiate a payment plan. Yes, you can pay back taxes on an installment plan and you will have to pay interest and penalties.Interest
If you owe back taxes the I.R.S. will charge you interest on the unpaid balance and the rate changes every three months.
The impact of the combination of penalties is how Joe Louis' situation went from bad to worse as his tax bill ballooned from 500,000 to over a million dollars. The longer you wait the more it will cost you in the long run. If you have a complex situation it makes sense to obtain representation from an attorney who specializes in tax law. You know what they say -- the only thing guaranteed in life is death and taxes.
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1. I allowed the government to compute my taxes and they sent a check for the refund. About a year and a half later, they contacted me saying I owed them money for the year they issued the check? I'm "The Bush Fly" and this is wrong! How did I make a mistake if they calculated my taxes? It's like going to a restraunt and paying the bill, then seeing a huge additional bill come in the mail. It's double billing and it's wrong. Somebody official needs to explain what happened! Now they are taking my current refund and my rebate check. Something is wrong with the IRS. With the ability to steal our identies, I thought this was fraud. I haven't heard a word from anyone officially.
Cecil Jones at 7:12PM on Mar 11th 2008