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There's a steeper penalty for failure to file than there is for failure to pay, but both can be costly for the taxpayer.
The penalty for not filing is 5 percent of the unpaid taxes for each month that a return is late, up to 25 percent.
The failure-to-pay penalty is 0.5 percent of unpaid taxes per month. It doesn't apply during the automatic six-month extension period if the taxpayer has paid at least 90 percent of his or her tax liability by April 15. Interest is charged, too, currently at a rate of 6 percent, according to the IRS.
Some Americans get automatic extensions to file:
-- U.S. citizens living outside the United States and Puerto Rico have an extra two months to file their federal returns.
-- Members of the military serving in Iraq, Afghanistan and other combat zone localities generally can delay filing until 180 days after the soldier leaves the combat zone.
-- In some designated disaster areas, where residents have been harmed by hurricanes or tornadoes, there can be announced extensions. This year, residents in parts of Illinois, Georgia, Missouri and Arkansas affected by floods and storms have filing and payment deadlines in May.
For the record, the IRS also charges a fee if a taxpayer's check bounces -- 2 percent of the face value of the check or $25, whichever is less.
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On the Net:
www.ey.com
www.cchgroup.com
Apr 08 16:42
By LARA JAKES JORDAN
Associated Press Writer
WASHINGTON (AP) -- The Justice Department targeted tax "defiers" Tuesday, warning that Americans who refuse to pay up on April 15 could wind up spending even more later in costly penalties.
Prosecutors also sought to shut down a Florida-based marketing firm that made millions of dollars off advising people how to avoid paying annual income taxes.
"With the privileges that this country gives you, we have both obligations and responsibilities to give back," Assistant Attorney General Nathan Hochman told reporters in Washington. "Taxes are the lifeblood of the American civilized society."
Hochman oversees the Justice Department's cadre of tax prosecutors. He described claims by some groups that income taxes are unconstitutional as "bogus."
"If you owe taxes, you must pay them. Period," Hochman said.
Since 2001, the Justice Department has shut down more than 100 tax preparers and those who promote ways to evade taxes for intentionally filing fraudulent claims and frivolous returns. Hochman did not immediately know how much these so-called tax defiers cost the government in lost revenues.
Tax protesters argue the IRS has the authority neither to force employers to withhold federal income tax from their workers' paychecks nor to compel anyone to pay income taxes. They estimate tens of thousands of Americans agree.
Robert Schulz, founder of We The People Foundation for Constitutional Education, says the government has for years avoided answering questions about its specific authority to collect taxes.
"If they don't respond, then the people are free to withdraw their allegiance, their financial support, retain their money," said Schulz, of Queensbury, N.Y. "They are quick to portray everybody as anti-tax. It's not true -- they're not anti-tax, they're just pro-law."
Schulz does not pay income taxes since deciding in 2002 to eschew any jobs that would pay him. He lives on revenue from selling parts of his property -- for which he pays capital gains taxes -- and embarked on a hunger strike in 2001 to protest the government's enforcement of the income tax.
On Monday, the Justice Department filed injunctions in federal courts to stop Pinnacle Quest International (PQI) and its agents from selling and marketing products that help customers bilk the IRS though shady tax shelters or by filing fraudulent claims.
The injunctions, filed in Pensacola, Fla; Tacoma, Wash.; and Portland Ore.; accuse the firm of selling $54 million worth of tax evasion materials between 2002 and 2006. Many of the products were sold at pricey resorts around the world, including during a Mediterranean Sea cruise last May that was attended by 400 people.
One of the PQI salespeople on that trip was a former IRS revenue agent who prosecutors said made an estimated $138,000 selling tax schemes before she was sentenced in February to four years in prison.
An e-mail message seeking comment from PQI was not immediately answered. Attempts to locate a valid telephone for its offices, based in Fort Walton Beach, Fla., were unsuccessful.
Apr 10 06:33
By ALAN FRAM
Associated Press Writer
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WASHINGTON (AP) -- That nice annual tax refund from Uncle Sam isn't a luxury anymore for growing numbers of people. Instead, it's increasingly going right out the door to pay bills.
In the latest illustration of how the economic slowdown is hitting home, more than a third, or 35 percent, said they are using the money to pay utility, credit card or other bills, an Associated Press-AOL Money & Finance poll showed Thursday. A year ago, 27 percent said they were using it that way.
About a third said they are saving or investing the money, down slightly from last year. Nearly a quarter said they are using their refund to pay debt from credit cards and other loans -- essentially the same as the one in five who said so a year ago.
Among those using their Internal Revenue Service check for necessities is Ricky Martinez, an unemployed construction worker from Waco, Texas. He said his refund was about $600, far smaller than last year's, and he has already used it to pay rent and other bills in advance because of his uncertain job prospects.
"It's just been hard for me to find a job," Martinez, 29, said in a follow-up interview. In past years when his IRS refund was larger, he saved it in hopes of buying a house, he said.
That's not to say some people aren't enjoying their checks. One in five is spending it -- an increase from last year -- on everything from everyday needs to shopping sprees and vacations.
"We're using it to pay off bills and to travel, one of our top priorities," said Daryle Lynn Cornelison, 61, a retired school administrator from Laguna Beach, Calif.
The average tax refund so far this year has been $2,464, up slightly from a year ago, according to the IRS.
Separately, the government will soon begin sending special tax rebates to millions of Americans in hopes they will spend the money and spur economic growth. Those checks will be up to $600 per person and are on top of the refunds.
In the poll, 56 percent said they have received or expect a refund this year, a significant drop from 66 percent a year ago.
There have been no tax law changes that would reduce the number of people getting refunds. Analysts could point to no specific reason for the lowered expectations, other than suggesting it might reflect the general gloom the public feels about anything related to the listless economy.
According to IRS figures, refunds have been sent to 80 percent of those who filed returns through March 29, down from 85 percent of those who filed during the same period last year. David R. Williams, IRS director of electronic tax administration, said in the end the proportion getting refunds this year should be the same as last year.
"A significant number of people who responded to your poll may in fact be pleasantly surprised," he said.
Even so, analysts said if fewer people think they're getting a refund, it might make them less likely to spend money -- which would hinder economic recovery.
Fifty-nine percent said they were filing their taxes electronically, up slightly from a year ago, led by higher-earning and all but the oldest taxpayers. Those still using mail tended to be older, lower-income and single.
Nearly eight in 10 said they think filing electronically is secure -- a small drop from a year ago, perhaps due to public attention to lost government laptops holding data and other mishaps. This week, a federal inspector general's report said the number of fraudulent tax returns using stolen identities has multiplied sixfold in recent years.
"It's just easier," said Terry Harris, 49, an electronic filer from Wiley, Colo. "I have family who have worked for the Post Office, and I'm constantly amazed when I get mail."
The poll also found:
--Almost one in five saying they spent 10 or more hours on their taxes. They tended to be middle-aged and more affluent.
--63 percent using professional tax preparers, up from last year. Nearly a quarter said they were using software programs on their own, little changed. Nine percent -- down from 15 percent -- were filling out paper forms by hand, largely older people.
--85 percent of those who owe taxes said they would probably not use credit cards to pay, which involves an additional fee.
--Nearly nine in 10 said they are organized in keeping tax records, a group dominated by women, older people, the highest earners and Republicans.
The AP-AOL Money & Finance poll was conducted from March 24-April 3 by Abt SRBI Inc. It involved telephone interviews with 1,002 adults nationwide, including 863 who said they were involved in filing their household's tax returns. It had a margin of sampling error of plus or minus 3.1 percentage points for all adults, 3.3 percent for those responsible for filing taxes.
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AP Director of Surveys Trevor Tompson and AP News Survey Specialist Dennis Junius contributed to this report.
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On the Net: http://money.aol.com
Apr 06 23:51
By DUNCAN MANSFIELD
Associated Press Writer
KNOXVILLE, Tenn. (AP) -- For many Americans, those tax rebate checks meant to stimulate the economy will be coming just in time -- for a vacation.
The centerpiece of President Bush's $168 billion rescue package for a wobbly economy is a tax rebate program that will put up to $1,800 in the wallets of a couple with two kids in a matter of weeks, the prime season for planning summer trips and early fall getaways.
"The timing of this couldn't be better for travel tourism," said Steve Morse, an economist and director of the Tourism Institute at the University of Tennessee.
Some 130 million people will be getting checks -- $600 for an individual, $1,200 for a couple, $300 for each child -- from May 2 through July 11.
Critics suggest debt-burdened consumers will use the money to pay old bills, rather than make new purchases.
An Associated Press-Ipsos poll seems to confirm this -- with 45 percent planning to apply the rebate to debt, 32 percent planning to invest it and only 19 percent planning to spend it.
"But we have seen some behavior that even when they are pinched, vacations are a right of life," Morse said. "People will borrow money to take a vacation, it is that important to them."
Morse and former grad student Warren Jahn make the case for tax rebate optimism in the tourism industry in a new report. It relies heavily on research by others and a previous study by Morse that plays down even rising gas prices as an obstacle to consumers determined to relax in the Great Smoky Mountains.
The research suggests that consumers will say "one thing before they get the money in their hand but after they get it, they actually spend more than they got in the rebate," he said.
Morse cites a November study by three economists from the Federal Reserve Bank, the University of Nevada-Reno and the University of Pennsylvania's Wharton School examining consumer habits from a similar though smaller rebate in 2001. The researchers tracked activity of 75,000 credit card accounts.
The study found that many consumers used the rebates to pay down credit card debt, just as pre-rebate surveys suggested they would do. But three to nine months later, they used their newly freed-up credit to buy even more. On average, they spent 40 percent more than the original amount of their rebate.
"If consumers use the 2008 tax rebate in a similar fashion as the 2001 rebate study suggests, consumers will spend more of the (2008) rebate than originally planned, generating opportunities for boosting 2008 travel demand," Morse's report says.
"We are sure hoping that he is right," said Leon Downey, chairman of the Southeast Tourism Society and executive director of tourism in the Smokies tourism community of Pigeon Forge.
Morse's report created a buzz last week at a Southeast Tourism Society meeting in Asheville, N.C. Hotel and travel destination professionals from 12 states -- from Little Rock, Ark., to St. Augustine, Fla. -- left with plans to order up ad campaigns and design getaway packages aimed at the rebate audience.
"We will be planting that seed," Downey said. "I think lots of people in the travel industry will do the same thing."
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On the Net:
UT Study: http://web.utk.edu/(tilde)tourism
Apr 09 14:21
By JIM ABRAMS
Associated Press Writer
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WASHINGTON (AP) -- Fraudulent tax returns filed as a result of identity theft jumped more than sixfold over the past five years, but the Internal Revenue Service rarely pursues or prosecutes such cases, a Treasury Department watchdog said in a report released Tuesday.
J. Russell George, the Treasury inspector general for tax administration, said the IRS must do more to combat the growing problem of employment-related and tax-fraud identity theft.
The agency has placed only limited emphasis on these issues, George said. "The IRS' policy is that identity theft will only be investigated if it is committed in conjunction with other criminal offenses having a large tax impact."
New IRS Commissioner Douglas Shulman, National Taxpayer Advocate Nina Olson and George were to testify before the Senate Finance Committee on Thursday regarding the identity theft problem.
"The IRS needs to help stop identity theft in the first place, and go after perpetrators with enough vigor to deter future crimes," Senate Finance Committee Chairman Max Baucus, D-Mont., said Wednesday in response to the report. "It's time for the IRS to tackle identity theft head on, as a much higher priority than they do today."
The report cites two main incentives for stealing another person's Social Security number and taxpayer identity: to file a fraudulent tax return to steal a tax refund or to obtain employment.
The report said that between 2002 and 2007 the number of fraudulent tax return complaints the Federal Trade Commission received soared from 3,000 to more than 20,000. In the same period, complaints concerning employment-related identity theft more than doubled, from 15,000 to 35,000.
It said the IRS has tried to stem identity theft through public outreach programs, including creating an identity theft site on its Web page. The agency is warning taxpayers to be vigilant about "phishing" scams in which unscrupulous people claim in e-mails or phone calls to be from the IRS and demand that people reveal Social Security numbers and other confidential financial material.
But the agency rarely recommends identity theft cases for prosecution, the report found. Of 2,720 prosecution recommendations made by the IRS Criminal Investigation Division in fiscal year 2006, 55 involved identity theft.
The inspector general said the agency's preventive strategy does not include pursuing individuals using another person's identity unless their cases directly related to a substantive tax or conspiracy violation.
It also faulted the IRS for not notifying employers and otherwise not doing enough to stop unlawful use of a taxpayer's identity.
The tax agency, in response, agreed with recommendations that it develop a strategy for dealing with the identity theft problem, including coordinating with other agencies such as the FTC and the Social Security Administration.
But the IRS said it is constricted in doing more because it does not have the enforcement resources to address most of the cases and because disclosure rules hinder its ability to share information with employers and other agencies.
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On the Net:
Treasury Inspector General for Tax Administration: http://tigta.treas.gov
IRS: http://www.irs.gov
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