What Is The Penalty For Filing Taxes Late?
Delinquency penalties are imposed whenever a tax return is filed late. The purpose behind the delinquency penalty is the same as any penalty or fee for doing something late; that is, to encourage timely action. However, while nearly every American taxpayer knows when their tax return is due, sometimes life or procrastination gets in the way of filing on time. Accordingly, many Americans, and perhaps you too, may incur a delinquency penalty from the IRS for filing late tax returns. When this occurs, it’s important to understand how the penalty is computed to avoid overpayment.
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The Penalty Amount for Filing Taxes Late
Whenever a taxpayer fails to timely file their income tax and other returns by the due date, including extensions, Internal Revenue Code (IRC) Section 6651(a) imposes a penalty of 5 percent (5%) per month, up to a maximum of five (5) months or 25 percent (25%). The delinquency penalty is imposed on the net amount due, which is the difference between the amount that should be shown on the return and the amount paid on or before the due date, plus the amount of any credit against the tax. Suppose you failed to file a return on the date prescribed, including extensions, or you failed to file a return at all, the IRS will assess a delinquency penalty unless it is shown that your failure to file a tax return was due to reasonable cause and not willful neglect.
Do take note that the return referred to by IRC and regulations must be one that meets their requirements. Therefore, it does not include unsigned returns or returns that do not disclose information relating to income and deductions.
Minimum Penalty for Failure to File a Tax Return
Where there is an extended failure of the taxpayer to file a return, a minimum penalty is imposed. The Internal Revenue Manual (IRM) provides the manner on how the minimum penalty operates:
- If the return is filed within sixty days after the due date, the usual failure-to-file and failure-to-pay penalties apply, not the minimum penalty.
- If the return is filed beyond sixty days past the due date, the failure-to-file penalty, without adjustment for the failure-to-pay penalty, is computed to determine whether it equals or exceeds $435. If it is equal to or exceeds $435, the minimum file penalty does not apply.
- If the failure-to-file penalty computed is less than $435, the minimum failure-to-file penalty applies. The penalty is based on the amount shown as tax due on the return. If the amount of tax due is less than $435, the applicable minimum penalty is the amount that is shown as tax due on the return. If the amount of tax due is more than $435, the minimum failure-to-file penalty is $435.
- Where the minimum failure-to-file penalty applies, the IRS takes the position that the amount of the failure-to-file penalty is not reduced by the amount of the failure-to-pay penalty, where it is applicable. Instead, both penalties apply concurrently, and the combined total of the penalties is assessed as due.
For example, an income tax return is not filed within sixty days after the date prescribed for filing a return, a delinquency penalty is imposed in an amount not less than the less of $435 or 100 percent (100%) of the amount required to be shown as tax on the return. However, the penalty will not be imposed where there is reasonable cause.
Fraudulent Failure to File a Tax Return
If your failure to file a return is fraudulent, no accuracy-related and fraud penalties are imposed. Instead, the delinquency penalty that the IRS will impose would be increased from 5 percent (5%) to 15 percent (15%) for each month of delinquency, up to a maximum of 75 percent (75%).
Unlike delinquency penalties, the IRS has the burden of proving the fraud element on the increased portion of the penalty by clear and convincing evidence in fraudulent failure to file cases.
Suppose the IRS fails to sustain its burden of proof but has alleged, in the alternative, that the taxpayer is liable for the basic delinquency penalty. In that case, the court can consider the basic penalty where the burden of proof would be on the taxpayer.
Suppose the IRS failed to make an alternative determination in the notice of deficiency but raised the basic delinquency penalty in its answer. In that case, the Tax Court can consider the delinquency penalty, but the burden of proof would be on the Service.
However, if the basic penalty is not raised in either the notice of deficiency or the answer, the Tax Court cannot consider the basic delinquency penalty.