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Oct 12 2015
Late Filing & Payment Penalties

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April 15th (March 15th Corporations) was the deadline to file income tax returns or October 15th if an extension of time to file income tax return was timely filed (September 15th Corporations). The lntenal Revenue Service assesses late filing penalties and interest for late filing of returns and or late payments of income tax.

Individuals & Corporations — Failure to Pay - The failure to pay penalty is .5% for each month (or part of a month) the payment is late. For example, if you were six months late the penalty would be 3%. The maximum penalty for failure to file is 25%. This is based on .5% times maximum penalty period of 50 months. If a taxpayer has 90% of tax paid by the original due date of a retum they will not be charged a penalty but will be charged interest on the remaining balance

Failure to File - A failure to file penalty is based on tax owed. Therefore, if a taxpayer has no tax due, no penalty will be imposed on a late filing of a tax return. If a taxpayer has a tax due, the penalty is 5% per month (or partial month) up to a maximum of 25%. The minimum penalty for filing more than 60 days late is the smaller of $100 or 100% of the tax required to be paid on the return.

Failure to File & Failure Pay — If a taxpayer has a late return as well as a late payment, the failure to file penalty is 4.5% per month so that the combined penalty remains at 5% per month for the first five months. After the first five months the failure to pay penalty continues at .5% per month for 45 additional months. Thus, the combined penalties can reach a total of 47.5% if a taxpayer is 50 or more months late in filing and paying income tax due.

Interest on Underpayments of Tax — In addition to failure to pay penalties the Internal Revenue Code also charges interest. The underpayment interest rate is the federal short-term rate, rounded to the nearest full percent, plus three percentage points. The rate is adjusted quarterly. The current rate for the calendar quarter beginning April 1, 2007 is 8% for individuals and most corporations. Large corporate underpayments are taxed at the federal short-term rate plus five percentage points which (is 10%) for the current quarter.

S Corporations - If an S corporation does not provide a K-1 to a shareholder when due or gives incorrect information or missing information, they will be charged a $50 penalty for each K—1 for which a failure occurs. If information is intentionally disregarded the penalty will increase to $100 per K-1

Partnerships — Partnership income is passed through and taxed on the partner‘s personal income tax return. Since a partnership does not get assessed tax directly, the penalty is not based on tax due. Instead, it is based on the number of partners in a partnership and how late the partnership is filing the return. The penalty is $50 for each month or part of a month (maximum five months) the failure continues, multiplied by the total number of partners in the partnership during any part of the tax year for which the return is filed. For partnerships with many partners this penalty can be quite steep. For example, if a partnership was two months late in hling and had 50 partners, the penalty would be $5,000 (two months x $50 = $100 x 50 or $5,000). Relief may be available for partnerships with fewer than 10 partners where the income was timely reported by all the partners.

Inability to Pay Income Tax When Due — A taxpayer can file 9465 to request the IRS to enter into an installment agreement. An installment agreement does not, however, stop interest from being charged at the current rate on the unpaid balance. The late payment penalty will be 25% instead of .5% per month. The IRS charges a fee of $105 for entering into an installment agreement.

A corporate taxpayer expecting an NOL carry back can file form 1138 which is an extension of time for payment of tax. it needs to be filed after the beginning of the tax year the NOL is expected but before the due date for paying the previous year's income tax.

 

Last Updated by Admin on 2015-10-12 10:08:26 PM

 

 

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