IRS Penalties for Delinquent Returns & Unpaid Taxes

The IRS assesses two main penalties to taxpayers for delinquent returns or unpaid taxes. The first of those penalties is the penalty for failure to timely file an income tax return, which is assessed under Internal Revenue Code 6551(a)(1). The second is the penalty for the late payment of the tax, which is assessed under Internal Revenue Code 6551(a)(2).

The penalty for failure to timely file an income tax return is assessed at 5% per month that the return remains delinquent for a maximum of 25%. The penalty begins to accrue on the first day after the deadline to file the return, factoring in any extension to file. For example, if no extension is filed and a return is filed on April 16th, which is the day after an income tax return is due, a 5% penalty is assessed. By August 16th, if the return remains unfiled, the maximum 25% penalty would be assessed. The penalty for failure to timely file the return is assessed as a one-time penalty when the return is filed. If the tax is later reduced through an amended return or increased by an amended return or through an examination of the return, then the penalty for failure to timely file will be recalculated based on the resulting tax due.

The penalty for the late payment of tax is assessed at ½ of 1 % per month for a maximum of 25%. The penalty for the late payment of the tax is assessed at the time the return is filed if there is a delinquency in the tax. However, unlike the penalty for failure to timely file, the penalty for late payment of the tax will continue to accrue each month after the return is filed until either the total tax is paid in full or the maximum 25% penalty is reached.

For example, a return showing an unpaid balance due of $1000 that is filed on August 16th with no extension previously having been filed would be assessed a $250 penalty for failure to timely file the return and a $25 penalty for late payment of the tax. If the tax remains unpaid on September 16th then an additional $25 in late payment penalties would accrue. Each month an additional $25 would accrue for the penalty for late payment of the tax until either the $1000 balance was paid or the maximum $250 penalty was reached. As you can see, filing a return late and paying the tax late can lead to an aggregate amount of penalties equal to 50% of the unpaid balance due on the return.

If you are facing severe penalties from the IRS for delinquent returns and unpaid taxes, contact J David Tax Law to see if you qualify for tax relief.