The IRS failure-to-file penalty starts the day after your deadline and compounds monthly. After five months, the base penalty alone reaches 25% of unpaid tax — before interest.
TYM CPAs stop the accumulation, reconstruct missing records, and file returns that minimize total liability. The process is structured, not improvised.
The IRS penalty structure is designed to escalate. Here is the timeline most people don't see until it's too late.
Note: If the IRS files a Substitute for Return (SFR) on your behalf, it uses the least favorable filing status and ignores deductions. The resulting liability is almost always higher than what a CPA-prepared return would show.
Specific penalty amounts that apply to most unfiled returns.
The client had been self-employed for three years and had not filed federal returns. An IRS CP2000 notice arrived claiming $68,400 in income based on 1099s — with no deductions applied. The IRS had filed a Substitute for Return using single filing status.
TYM reconstructed income and expenses from bank statements and client invoices, identified $29,100 in legitimate business deductions, and filed three amended returns. The actual tax liability dropped from $14,200 to $4,900.
First-Time Abatement was applied to year one, and a penalty abatement request citing reasonable cause was filed for years two and three. Total penalties reduced from $41,200 to $6,800. An installment agreement was established for the remaining balance.
Late filing situations vary. TYM handles all of them.
The IRS has already filed a Substitute for Return or sent a CP2000 notice. The clock is no longer theoretical — a response deadline exists.
Freelancers and consultants who stopped filing after income became irregular. Reconstructing records and filing in sequence is the correct path.
US citizens abroad who believed they had no filing obligation. The foreign earned income exclusion is not automatic — a return is still required.
Canadian residents who earned US-source income (rental, consulting, dividends) and did not file a US return. IRS withholding does not eliminate the filing requirement.
S-corps, C-corps, and partnerships with missed Form 1120, 1120-S, or 1065 filings. Late partnership returns carry $245/partner/month penalties.
Executors who missed Form 1041 deadlines. Penalty and interest exposure applies to the estate, not the beneficiaries — but delays affect distribution timelines.
A structured resolution process — not a rushed filing.
Before any filing begins, TYM calculates the current penalty and interest balance, identifies applicable abatement programs, and establishes the filing sequence. This prevents inadvertent waiver of abatement rights.
When records are incomplete, TYM reconstructs income and expenses from bank statements, 1099s, W-2s, and client-provided documentation. Reconstructed records are documented in the return support file.
Returns are prepared in chronological order — oldest first — to ensure each year's carryforward items (NOLs, credits, basis) are correctly applied. Filing out of sequence creates compounding errors.
First-Time Abatement (FTA) applies to the first year of non-compliance. Reasonable cause abatement applies when documented circumstances (illness, disaster, reliance on advisor) support the claim. TYM prepares both.
TYM handles all IRS correspondence, responds to notices, and represents clients under Power of Attorney. Clients do not communicate with the IRS directly during the resolution process.
When the remaining liability exceeds available funds, TYM negotiates installment agreements, Currently Not Collectible status, or Offer in Compromise — depending on the client's financial position.
TYM reviews available records, identifies missing years, and calculates the current penalty exposure. This establishes the full scope before any engagement begins.
A structured checklist is provided for each missing year. TYM requests IRS transcripts (Wage & Income, Account, Return) to identify what the IRS already has on file.
Returns are prepared in sequence, oldest first. Each return is reviewed for accuracy against IRS transcript data before filing to avoid discrepancies that trigger further notices.
Penalty abatement requests are filed simultaneously with or immediately after the returns. Timing matters — FTA is only available before the IRS assesses the penalty through an SFR.
TYM monitors IRS processing, responds to any follow-up notices, and confirms penalty adjustments have been applied correctly to the account transcript.
If a balance remains, TYM establishes the appropriate payment arrangement and confirms the account is in good standing — preventing liens, levies, and further collection action.
Late filing engagements are priced per return, based on complexity and available records.
Penalty abatement requests are included in the engagement fee. Multi-year packages (3+ returns) are available at a reduced per-return rate. Exact fees are confirmed after the filing scope review.
TYM's Miami office handles late federal and Florida state filings for individuals, self-employed professionals, and businesses. Florida has no state income tax, but federal penalties apply in full. TYM CPAs are licensed in Florida and authorized to represent clients before the IRS.
TYM's Toronto office serves Canadian residents with US filing obligations — including late 1040, 1040-NR, and FBAR filings. Canadians with US rental income, employment income, or investment accounts often have unfiled US obligations they are unaware of. TYM identifies the full scope before filing.
When the IRS has already contacted you, TYM handles all communication and negotiation under Power of Attorney.
Overview of all US tax compliance and resolution services TYM provides for individuals and businesses.
Understand the full range of IRS penalties — failure-to-file, failure-to-pay, accuracy, and trust fund — and how each is resolved.
Late corporate returns carry separate penalty structures. TYM prepares and files Form 1120 for delinquent C-corporations.
Form 1120-S late filing penalties are assessed per shareholder per month. TYM resolves delinquent S-corp filings.
In most cases, no. The IRS has a 10-year collection statute, but there is no statute of limitations on unfiled returns — the IRS can assess tax at any time. Filing late is almost always better than not filing. Voluntary disclosure before the IRS contacts you preserves more abatement options.
First-Time Abatement (FTA) is an IRS administrative waiver that removes failure-to-file and failure-to-pay penalties for one tax year. To qualify, you must have no penalties in the prior three years and be current on all filing and payment obligations. FTA is only available once per taxpayer.
Ignoring an IRS notice triggers escalating collection action: additional notices, a Notice of Deficiency, Tax Court petition rights, and ultimately a federal tax lien or levy on wages and bank accounts. The IRS may also file a Substitute for Return, which almost always results in a higher tax liability than a CPA-prepared return.
The IRS typically pursues the six most recent unfiled years as a matter of policy. However, there is no legal limit — the IRS can go back further if fraud or substantial underreporting is involved. TYM assesses the full exposure before recommending a filing strategy.
Yes — and this is strongly recommended. Filing without paying stops the failure-to-file penalty (5%/month) while the failure-to-pay penalty (0.5%/month) continues. The combined penalty for not filing and not paying is 5% per month. Filing immediately reduces that to 0.5% per month on the unpaid balance.
A typical three-year resolution takes 8–14 weeks from engagement to IRS confirmation of penalty adjustments. Complex situations — multiple entities, foreign income, or SFR disputes — take longer. TYM provides a timeline estimate after the initial filing scope review.
The content on this page is for informational purposes only and does not constitute professional tax or legal advice. IRS penalty amounts, abatement eligibility criteria, and collection procedures are subject to change. Individual circumstances vary significantly; the outcome described in the case study is not representative of all engagements. Confirm current obligations and options with a licensed CPA or tax attorney before acting on any information presented here.