Reckless Filing = IRS Penalties
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As the 2025 tax season looms closer, it’s time to get ready to file. If you wait until the last minute to prepare and file your tax return, chances are that you will rush and make mistakes. There are serious consequences for business owners who are reckless in preparing their tax return. Make sure you are ready early so you can avoid the consequences.
The IRS does not tolerate errors made due to reckless disregard and willful failure to file any reports correctly. For example, in the case of USA V. TIMBERLY HUGHES, the defendant, Hughes, failed to file a Report of Foreign Bank and Financial Affairs for her multiple businesses operating in New Zealand. While she was not found liable for failing to file the report for years 2010 and 2011 due to ignorance, she was assessed penalties for failing to file in 2012 and 2013 after acknowledging the report on her tax return but never filing it. Hughes’ argument that she was simply negligent over malicious was not supported, and it was determined that her objective recklessness led to a willful failure to file her FBAR.
Failing to file in general carries severe consequences. The penalty equals 5% of your unpaid tax balance every month your tax return is not filed. If you are in a high tax bracket and owe thousands of dollars, this can be a significant fine. If you do file your tax return but make mistakes due to being reckless, such as claiming 1000 versus 100 square feet of home office space, the penalty is “20 percent of the excessive amount claimed”. If you do claim the right amount of square feet, but you disregard other rules you must follow for the deduction, such as exclusivity, then the penalty is “20% of the portion of the underpayment of tax that happened because of negligence or disregard”.
The IRS is keeping a much closer eye on businesses these days than in the past. With their expanded budget granted by the Inflation Reduction Act, the IRS has recovered $4.7 billion from tax criminals as of December 2024. To avoid being targeted, get ready now. Your 2024 tax return will soon be due. To get ahead and ensure your tax return is correct, work with XQ CPA’s tax professionals. We are here to help you.
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Sources:
Finet, J.P. “Recklessness Leads to Willful Failure to File FBAR Penalty.” TAXPRO, Dec. 2024, pp. 52–53.
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