Failure to File/Failure to Pay IRS Penalties

Failure to File Penalty (IRC §6651(a)(1))

The failure to file penalty is applied starting from the date the return is due at a rate of 5% per month of the amount of tax that is required to be shown on the return to a maximum of 25%.

This penalty applies to the amount of tax shown on the taxpayers return, plus any amount subsequently assessed, minus allowable credits.  

Failure to Pay Amounts Shown Penalty (IRC §6651(a)(2))

The failure to pay amounts shown on a tax return penalty is also applied beginning on the return due date, but this penalty is applied at a rate of 0.5% per month of the amount shown on the tax return to a maximum of 25%. 

Coordination Between the Failure to File and Failure to Pay Amounts Shown Penalty

If both penalties are applied in the same month, then the failure to file penalty is reduced by 0.5%, or in other words the total penalty for the month will be 5%. 

Failure to Pay Amounts not Shown Penalty (IRC §6651(a)(3))

There is another penalty that is applied after the IRS determines that the taxpayer owes money not shown on the original return.  This penalty applies on the additional amount due, 21 calendar days (10 days if the total balance equals or exceeds $100,000), from the notice and demand for payment date at a rate of 0.5% per month not to exceed 25%.

Timely Filed, Timely Mailed Rule

If a return is postmarked by the due date, then it is considered timely mailed.  If the return is registered or certified, the date of the registration or certification is considered the date it was mailed. 

Extensions of Time to File Tax Returns

If a taxpayer files a valid extension of time to file it is typically automatically granted.  However, an extension of time to file does not mean that the taxpayer is granted an extension of time to pay.  Therefore, if the taxpayer

1. validly filed an extension
2. paid 90% of the amount due on the original due date
3. files a return by the extended due date
4. and pays the remaining portion when filing the return,

Voidance of an Extension to File a Tax Return

If a taxpayer has reason to know that they will incur a tax liability, and fails to make estimated tax payments or provide withholding, then the extension to file will be voided by the IRS. 

Individuals Living Outside the United States

1. They live outside the United States on April 15^th,or
2. Are on military duty; and
3. They attach a statement to their return stating (1) or (2) above

1. serves in a designated combat zone for the United States, or
2. is released from hospital as a result of a injury sustained in a combat zone.