Penalties--Eight Facts on Failing to File & Failing to Pay

In addition to its multiple powers, the IRS can assess a penalty if you fail to file, fail to pay or both. Here are eight important points the IRS wants you to know about the two different penalties you may face if you do not file or pay timely.

  1. Not filing on time subjects you to the failure-to-file penalty. Not paying on time: the failure-to-pay penalty. Not filing at all can also expose you to criminal penalties.
  2. Because the failure-to-file penalty is often more than the failure-to-pay penalty, you should still file your tax return on time and explore other payment options in the meantime. The IRS is often willing to work with you.
  3. The penalty for filing late is usually 5% of the unpaid taxes for each month or part of a month that a return is late. It is not to exceed 25% of your unpaid taxes.
  4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
  5. If your taxes are not paid by the due date, your failure-to-pay penalty can be as much as 25% of your unpaid taxes.
  6. If you timely filed a request for an extension of time to file and pay at least 90% your actual tax liability, you should not be faced with a failure-to-pay penalty when the remaining balance is paid by the extended due date.
  7. Both failing to file and pay penalties apply monthly. The 5% failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
  8. Should you be able to demonstrate reasonable cause—that is what a 'reasonable' person would have done in your circumstance, you could convince the IRS to remove your failure-to-file or failure-to-pay penalties.

Brought to you by Kundra & Associates and the IRS--April 14, 2011