File Tax Returns on Time Even When Unable to Pay, Advises Tax Attorney Eileen C. Seaman

GREENWICH, Conn., March 7 /PRNewswire/ -- Key to avoiding trouble with the IRS is to file tax returns on time even if you know you can't pay the taxes due, according to Eileen C. Seaman, Greenwich, Connecticut-based tax attorney. However, despite several good reasons to do so, many people with financial difficulties are too afraid to file, causing far greater problems with the IRS than they might otherwise face, she explained. Attorney Seaman, admitted to practice law in Connecticut and in several Federal courts, including the U.S. Tax Court and the U.S. Supreme Court, is also an Enrolled Agent with the United States Treasury Department, allowing her to represent clients before the Internal Revenue Service in all 50 States.

A compelling reason to file on time, Attorney Seaman explained, is the penalty for not filing is far higher than for not paying. The penalty for not filing is 5 percent per month, whereas the penalty for not paying is only 0.5 percent (one-half of 1 percent) per month. Filing on time totally avoids the 5 percent penalty and all of the interest that accrues on the 5 percent penalty until taxes are paid. If tax returns are not filed for several years, the interest alone on the non-filing penalty can add up to more than the penalty itself. Timely filing means filing the tax return by April 15th, or later if requesting and receiving a filing extension. There is no cost to a filing extension, although the extension does not extend the time to pay the taxes due.

In most cases, Attorney Seaman continued, the statute of limitations for the IRS to audit tax returns lasts for three years after filing, or the due date, whichever is later. At the end of three years not only can't the IRS audit the tax returns but the taxes on the returns become dischargeable in Bankruptcy Court. If the return is filed in March the statute starts April 15th. If the return is filed after April 15th - June 1st for example, the statute starts June 1st. For the taxes to be discharged in Bankruptcy Court a person must file for bankruptcy protection.

"One client came to me with more than eight unpaid tax returns that were filed on time, but never paid," Attorney Seaman related. "In my negotiations with the IRS, all but the three most recent returns, along with all of their related interest and penalties, could have been discharged in a bankruptcy proceeding, and therefore the IRS negotiated as if those tax years had in fact been discharged. The result was more than $200,000 was forgiven as the result of an Offer in Compromise. An Offer in Compromise is a plea to the IRS to forgive taxes on the basis of lack of liability, lack of collectibility, or a hardship if the tax were to be paid."

Timely filing is important not only for Federal income taxes but for State taxes as well, according to Attorney Seaman. It is important to file in a timely fashion not only in the State where you reside, but also in the State where you work, she mentioned. She told of one client, who filed in the State where he lived but failed to file for a refund due him in the State where he worked and paid State withholding tax. By the time he filed for the refund three years had passed; he had gone beyond the three-year statute of limitations for filing, and lost all of the thousands of dollars of tax refunds due him.

Eileen C. Seaman, Esq.
Attorney at Law
Post Office Box 4777
Greenwich, CT 06881
203 863-9000
fax 203 661-4066
website http://www.taxesandlaw.com/