 US Penalties for Late Filing/Payment
Where an individual has not made the proper application for
extension,
does not file the return by the due date granted by the extension, or has
an extension made deemed invalid because insufficient tax has been paid over,
certain penalties can be applied by the IRS.
In brief the penalties that the IRS can impose are 'Late filing penalty'
and 'Late payment penalty' The penalties are calculated by reference to
the tax due at April 15, the due date of the return without regard to any
extensions.
These penalties can prove quite severe and are charged in addition to
interest which will accrue on any amount unpaid from April 15 regardless.
Late Filing Penalty
This penalty is charged when a tax return is deemed to be filed late. It
is charged as 5% of the tax outstanding at April 15 for each month the return
is late up to a maximum of 25%. Where a Late Payment Penalty is also in
force the penalty is reduced by the amount of the late payment penalty charged
(0.5% see below). back to top
Late Payment Penalty
This penalty is charge when tax remains unpaid and an
extension
was not made or is not valid. The penalty is charged at 0.5% for each
month the amount remains unpaid up to a maximum of 25%. This penalty would
obviously take many months to accrue to its maximum. back
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Combined total penalties
As a consequence of these penalties it is possible to reach a stage where
the total penalty imposed is 47.5% of the tax due at April 15. The reason
that the total penalty is not 50% as might be suspected is that during the first
5 months when both penalties run simultaneously the overall penalty is still
limited to 5% each month.
Determinations
If a tax return remains un filed the IRS can also perform what is termed
a 'Determination' which is effectively where they determine a figure for tax
due in the year based on any information they hold. The figure of tax they
calculate will not normally be done so in a way that is beneficial to the individual.
However once made they have the power to seek collection of any amount
determined and can impose tax liens in an effort to collect the money if unpaid.
This method is normally seen as a last resort by the IRS and is usually
done in an effort to force you to file, if only to calculate a more accurate
figure of tax for the year to reduce the amount you are required to pay and
the penalties associated with it. A determination made by the IRS is necessarily
not a good thing.
If you have any questions in this regard or feel that you would like further
information in this regard please
contact us.
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