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Tax Newsletter

Delinquent Tax Return Filing

Many taxpayers at one time or another find themselves in a situation where they either did not file their Federal Income Tax return on time and/or filed their tax return without making the necessary payment for the tax year covered. In either or both situations, the IRS may impose a failure-to-file penalty, a failure-to-pay penalty, or both.

Failure-to-File Penalty
The failure-to-file penalty is assessed to those taxpayers who did not file their tax returns on time, and who did not obtain an extension for the filing due date (or obtained the filing extension, but missed the extended due date). Such failure to file is subject to a hefty IRS delinquency penalty of 5 % per month up to a maximum of 25 % of the tax owed. If the failure to file is considered to be a fraudulent failure to file, the penalty is a much heftier 15 % per month, up to a 75 % maximum.

If you file more than 60 days late, there is a minimum penalty of $135 or 100% of the total tax, whichever is less.

Failure-to-Pay Penalty
The failure-to-pay penalty is assessed to those taxpayers who did not make their payments by the necessary due date. Such failure to pay is subject to an IRS late payment penalty of ½ % per month up to a maximum of 25 % of the total amount of unpaid taxes.

When the IRS assesses both penalties
In situations where both penalties are assessed, the failure-to-file penalty is reduced to 4 ½ % per month so that the combined penalty remains at 5 % per month. However, the 25 % maximum only applies for the first five months, after which the monthly penalties resume at ½ % for an additional 45 months, effectively adding 22 ½ % for a total maximum penalty of 47 ½ % on top of the original tax that must be paid.

Reasonable Cause
The IRS may agree to forego the imposed penalties if the offending taxpayer can show that the lateness was due to “reasonable cause” as opposed to “willful neglect.”

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