Tax Penalties

Why causes tax penaties

Failure to file – when you fail to file your tax return by the due date or by the extended due date if an extension request was approved by the IRS.

Failure to pay – when you fail to pay the taxes in full and on time when they were reported to the IRS. Obtaining an extension to file does not extend your time to pay.

 

How does the IRS calculate penalties

According to the official website of the Internal Revenue Service, penalties are calculated as follows:

Failure to file: Internal Revenue Code §6651(a)(1)

  • 5% of unpaid tax required to be reported
  • Reduced by the “failure to pay” penalty amount for any month where both penalties apply
  • Charged each month or part of a month the return is late, up to 5 months
  • Applies for a full month, even if the return is filed less than 30 days late
  • If any unpaid tax was required to be reported, a minimum penalty applies to income tax returns received 60 or more days late. The minimum penalty is the lesser of the unpaid tax or:
    • $205 – Returns due on or after Jan. 1, 2016. This penalty rate is subject to an annual adjustment for inflation in $5 increments.
    • $135 – Returns due between Jan. 1, 2009 and Dec. 31, 2015, or
    • $100 – Returns due before Jan. 1, 2009

Failure to pay tax reported on return: Internal Revenue Code §6651(a)(2)

  • 0.5% of tax not paid by due date, April 15; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
  • Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid or until 25% is reached
  • Full monthly charge applies, even if the tax is paid before the month ends.

Failure to pay tax not reported on original return and not paid in full within 21 days of the date of notice and demand; 10 business days if the amount in the notice and demand equals or exceeds $100,000: Internal Revenue Code §6651(a)(3)

  • 0.5% of tax not paid by due date in notice - generally 21 calendar days from notice date, 10 business days if the balance equals or exceeds $100,000; 0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual); 1% if tax is not paid within 10 days of a notice of intent to levy
  • Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid
  • Full monthly charge applies, even if the tax is paid before the month ends.

How to reduce or remove penalties

In certain circumstances you may qualify for a reduction in penalties, if you tried but failed to meet your tax obligations.  Tax Champions will use several approaches to reduce or remove those penalties. Call us today for your free consultation 1-800-518-8964.

 
 
 
 
 

Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.
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