FAILURE
TO FILE AND FAILURE TO PAY
PENALTIES,
ABATEMENTS AND INTEREST
INTRODUCTION
Late penalty and
interest assessments regularly constitute a major
portion of a delinquent liability and often lead to
what appears on the surface to be an unmanageable tax
debt. This discussion will focus on accrued
interest and late tax penalties that result from
failure to file and/or failure to pay and includes the
criteria and tactics that may be employed to reduce or
remove IRS late tax penalty and interest assessments.
LATE
TAX PENALTIES
Failure to File:
If you do not file your tax return by the due date
(including extensions), the IRS will make an
assessment for late filing. The penalty for failure to
file timely, is 5% for each month or fraction of a
month that the return is late. The cumulative failure
to file assessment is not to exceed 25% of the tax due
on the return. If the failure to file is due to fraud
the late filing penalty is increased to 15% for each
month or fraction of a month that the return is late
and is not to exceed 75% of the taxes due.
In the event that the
return is more than 60 days late (including
extensions) the late filing penalty will not be less
than the lesser of $100.00 or 100% of the late taxes
due.
Failure to Pay:
If you do not pay your liability on the due date of
the return the penalty is 1/2 of 1% for each month or
fraction of a month that taxes are not paid. The
failure to pay penalty does not apply during the
extension period if at least 90% of the taxes are paid
on the due date of the return and the balance is paid
when the return is filed.
The failure to pay
penalty is reduced to 1/4 of 1% for each month or
fraction of month that the liability is not paid if
the tax return is timely filed (including extensions)
or an installment agreement is in effect.
If a notice of intent
to levy is issued the penalty is 1% of the liability
due and commences 10 days after the day that the
notice is issued. If
a notice and demand for immediate payment is issued
the penalty is 1% and commences the day after the
demand is issued.
Failure to pay
penalties are not to exceed 25% of the late taxes due.
Combined Penalties:
If both the failure to file and failure to pay
penalties apply the failure to file penalty is reduced
by the failure to pay penalty. However, if the
late return is filed more than 60 days late the
minimum cumulative penalties will be the smaller of
$100.00 or 100% of the liability past due.
Negligence: If
any part of an underpayment is the result of
negligence or careless, reckless or intentional
disregard of rules and regulations a 20% penalty is
imposed.
Interest: The
IRS charges interest on the daily compounded
outstanding balance based on the federal rate of
interest.
PENALTY
AND INTEREST ABATEMENTS
Penalty Abatements:
The IRS will abate (remove) penalties and interest
on a case by case basis when reasonable cause is
established for non-compliance of rules and
regulations. Reasonable cause is generally defined as
extraordinary events beyond your control such as
medical incapacity, floods, fires, etc.. or reliance
upon the advice of the IRS.
If a paid professional
prepared your return and penalties and interest
resulted from a mathematical error or misapplication
of law he or she is liable to the extent that the
interest and penalties are a result of the error.
Filing delinquent
returns generally reduces taxable income, penalties
and interest and amending returns may produce the same
result. In addition, bankruptcy may discharge
(eliminate) the tax debt entirely and an accepted
offer in compromise will always reduce the tax,
penalty and interest assessments.
our Enrolled
Agents and Accountants are available to review your
particular situation to determine if penalties might
be waived. Remedies that have the potential to
reduce or eliminate penlties and interest include
requesting penlty abatements, filing delinquent
returns, offer in compromise and bankruptcy. (Free
Initial Consultations).
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and security policies guarantee that
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perform or to provide guidance sought will occur at
any time, now or in the future.
