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DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 793
Experience:  Years of Experience in Business & Personal Taxes
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Are you there? My question is in regards to penalties

Customer Question

Hi pearl. Are you there?
JA: No. I'm the Accountant's Assistant.
Customer: My question is in regards ***** ***** regarding incorrect filing status
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: I think I have been filing the wrong status for some years now. My spouse had not been filing taxes, and has been contacted by the it's to remedy the situation. My concern is that since he did not file, I may have erroneously filed my taxes under the wrong status. What are the penalties for this? Now that it has come to my attention I'm very worried about this
JA: Is there anything else important you think the Accountant should know?
Customer: Nope I think that covers it
JA: OK. Got it. I'm sending you to a secure page on JustAnswer so you can place the $5 fully-refundable deposit now. While you're filling out that form, I'll tell the Accountant about your situation and then connect you two.
Customer: Do you know how soon I'll hear from the accountant
Submitted: 1 year ago.
Category: Tax
Expert:  DanielleCPA replied 1 year ago.

Welcome and thanks for you're question! I'm a CPA and am here to help you with your tax question.

May I ask what filing status did you use when you filed your return?

Customer: replied 1 year ago.
Customer: replied 1 year ago.
Are U there?
Expert:  DanielleCPA replied 1 year ago.

Did you and your spouse live apart during any of this time period?

Customer: replied 1 year ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Customer: replied 1 year ago.
Expert:  DanielleCPA replied 1 year ago.

I'm sorry, but I am not currently available for a phone call. I can continue to help you out via chat or may opt out of the question so an expert who is currently available for a phone call may assist you. Please let me know how you would like to proceed.

Customer: replied 1 year ago.
Chat is fine
Expert:  DanielleCPA replied 1 year ago.

Ok, I apologize for any inconvenience!

Customer: replied 1 year ago.
What are the penalties for such a case?
Customer: replied 1 year ago.
How do I remedy this without civil or criminal penalties?
Customer: replied 1 year ago.
Are you there?
Expert:  DanielleCPA replied 1 year ago.

The answer is that it depends.

Head of household is the correct filing status for married taxpayers in limited situations where the IRS considers a taxpayer to be unmarried and meet head of household requirements. If head of household was the correct status for you, then no penalties would apply. These 5 criteria must apply for a married taxpayer to claim head of household for their filing status:

  1. You won't be filing jointly with your spouse; and
  2. Your spouse didn't live in your home after June (temporary absences due to illness, school, vacation, business, or military service don't count); and
  3. Your home was your child's, stepchild's, or foster child's main home for more than half the year; and
  4. You paid more than half the costs of keeping up your home during the tax year; and
  5. You meet the qualifications to claim the child as your dependent, even if the other (noncustodial) parent is actually claiming the child as a dependent on their return.

If you do not meet this criteria, then your filing status should have been married filing separately if you did not wish to file jointly with your spouse. The penalties for using the incorrect filing status are going to depend on how significant you underpaid your tax as a result of using the erroneous filing status.

Any underpaid tax as a result of this error would be subject to IRS late payment penalties. Late payment penalties are .5% of the underpaid amount for every month the payment is late. The maximum penalty is 25%.

If the IRS determined the underpayment of tax was the result of negligence, you could be subject to more penalties. Without other evidence of negligence, the IRS won't trigger this penalty unless the amount owed for a year is more than $5,000 or the 10% of the total tax liability, whichever is greater. This penalty is 20% of the underpaid tax. I don't believe this penalty is likely in your case - I personally have been fortunate enough to never had this levied on a client, but I wanted to let you know that it is possible.

You will also be subject to interest on the unpaid tax. Interest is currently at 3% and has been for the past several years, but the IRS determines interest rates quarterly.

Expert:  DanielleCPA replied 1 year ago.

It may be possible for you to request a waiver of any applicable penalties, but you won't be able to get out of the interest.

You may be eligible for first-time penalty abatement under certain criteria:

  • You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
  • You filed all currently required returns or filed an extension of time to file.
  • You have paid, or arranged to pay, any tax due.

If these don't apply to you, then you would generally would need to prove to the IRS that you either had a reasonable cause or sometimes having acted in good faith is enough. There is no guarantees of penalty abatement, but it is something you can attempt to get from the IRS.

Customer: replied 1 year ago.
Ok, so do I contact them to try to remedy this or should I wait for them to contact me? You also mentioned that penalties would be based on how significant the underpayment was, can this result in criminal charges or is it more so that they'd seek restitution of pament
Customer: replied 1 year ago.
I'm a little confused on the penalty abatement part. I've filled my taxes every year, although now I know I've filed under the wrong status. I know that my husband is working with the IRS to resolve his tax issues and from the way it looked, he was due a substantial refund. Would it be best for me to seek a CPA to help us fix this mess and incur minimal penalties?
Expert:  DanielleCPA replied 1 year ago.

It is unlikely that it would result in criminal charges. From what you have described, it doesn't sound like any type of criminal action would apply, but that would depend on all the facts. In my experience, the IRS's most likely course of action would be to request payment from you and pursue collections action if you do not pay or make payment arrangements with them within a certain period of time.

I personally would suggest being proactive with the IRS - file amended returns to correctly report your filing status, pay the underpaid portion of the tax or make arrangements to pay, and send a letter explaining the situation and requesting penalty abatement. My personal experience is that the IRS is generally very reasonable to work with when you are upfront with them.

I do believe it would be best for you and your husband to work together with a local CPA to help you resolve this. You won't be eligible for refunds for any tax years more than 3 years ago, but it is very likely that you and your husband's combined tax situation (if married filing jointly) would result in overall lower tax than the total you two would owe if married filing separate.

Customer: replied 1 year ago.
Ok, thank you so much for all of your help!
Customer: replied 1 year ago.
One last question, just to be certain I'm in the clear, what kinds of things would cause criminal charges?
Expert:  DanielleCPA replied 1 year ago.

First, the IRS would try and determine if there was fraud. Generally, the IRS errs on the side of giving the taxpayer the benefit of the doubt when the facts are unclear.

The IRS recognizes four elements of fraud: deception, misrepresenting material facts, submitting false/deliberately altered documents, or failing to submit criminal documents. An especially severe instance of one of these could be enough for the IRS to launch a criminal investigation, but most often several of these are present when the IRS initiates a case.

The IRS looks at fraud in four general categories: improper reporting of income, unjustified deductions or credits, inadequate recordkeeping, or outright illegal behavior. Examples of these could be not reporting cash income, taking false deductions, destruction of records, etc.

Customer: replied 1 year ago.
Ok, so filing under the wrong status if the spouse didn't file, would that fall into one of those categories?
Expert:  DanielleCPA replied 1 year ago.

Criminal investigations are launched for less than 2% of taxpayers and of these, only about 20% turn into criminal charges.

Using the incorrect filing status because of a lack of knowledge generally would not be considered criminal. Willfully using the incorrect filing status to obtain more deductions or tax credits would be.