IRS Penalty Abatement

April 17, 2015

In my last blog post written a few days before the April 15th tax filing deadline, I warned people about the two penalties that the Internal Revenue Service imposes on Taxpayers that file their tax returns late and owe taxes. Well, today, the Internal Revenue Service issued a similar statement. It addressed both the late filing penalties and late payment penalties I wrote about earlier and and added some helpful hints about what to do if a Taxpayer finds himself, or herself, in one of those situations.

In today’s statement, the IRS also focused on the two penalties that may apply. The first is a late filing penalty. The second is a failure-to-pay penalty for paying late.

IRS Late Filing Penalty.

The late filing penalty is normally 5 percent of the unpaid tax for each month, or part of a month, that a tax return is late. It won’t exceed 25 percent of your unpaid taxes.

Minimum Late Filing Penalty.

If you file your return more than 60 days after the due date or extended due date, the IRS pointed out that the minimum late filing penalty is the smaller of $135 or 100 percent of the unpaid tax.

Penalty for Late Payment.

The IRS also imposes a failure-to-pay penalty on Taxpayers, generally calculated as 0.5 percent per month of unpaid taxes. It applies for each month, or part of a month, taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of a Taxpayer’s unpaid taxes.

Combined Late Filing Penalties and Late Payment Penalties per Month.

If there’s any silver lining in all this, it’s that if the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is capped at 5 percent.

File Even If You Can’t Pay.

In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if a Taxpayer can’t pay in full, he or she should still file an income tax return and pay as much as possible.

Late Payment Penalty May Not Apply. If the Taxpayer requested an extension of time to file their income tax return by the tax due date and paid at least 90 percent of the taxes owed, there may not be a failure-to-pay penalty. However, in that circumstance, it’s important to remembe to pay the remaining balance by the extended due date. Taxpayers will still owe interest on any taxes paid after the April 15 due date.

No Penalty For Reasonable Cause.

If a Taxpayer can show reasonable cause for not filing or paying on time, the IRS may waive the failure-to-file or failure-to-pay penalty.

If you filed your income tax return late and owe taxes, contact an experienced New York tax attorney at Mackay, Caswell & Callahan, P.C. today. With over 30 years’ of tax experience and offices throughout New York State, we can offer experienced tax help.

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