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Tax Penalty CPA explains IRS failure-to-file and failure-to-pay penalties | Business and Personal

tax penalty CPA discusses failure to file and failure to pay

Gary Bode, CPA: the IRS can abate both these penalties if you can show just cause. For a free phone consult call (910) 399-2705.

CPAs see a range of IRS penalties. But in this post, we’ll cover the failure-to-file and failure-to-pay issues. At the end, I’ll cut and paste an IRS blurb on the topic as well.

Failure to File Penalty: assessed if you don’t file on time, or, file beyond the date of an extension.

Failure to File penalties are based on the amount of tax due. 5% per month of the unpaid tax, up to a cap of 25% . So, it maxes out at five months. Remember, there’s interest too.

What if you file late and have a refund due? After two months late, there’s a minimum penalty of $135 assessed.

What if you can’t pay? The Failure to File penalty makes it prudent to file your tax return on time and pay what you can. The IRS is good about working with you on paying the balance. But to avoid penalties, you have to pay at least 90%.

“A common misconception exists that you don’t have to file a tax return if you’re getting money back. But it seems silly to forego a refund. The IRS will still demand a correct return at some point and assess a penalty, albeit small.” 
-Gary Bode, tax penalty CPA

But with S Corporations, where there is no tax due, filing late without an extension incurs a $195 penalty per shareholder.

Failure to Pay Penalty

0.5% of the unpaid tax per month up to a maximum of 25%. So, it maxes out at 50 months.

The IRS isn’t Heartless

You can request abatement for both penalties for just cause. If IRS parameters are published, I’ll provide them in a future post. But examples may include a death in the immediate family at tax time, or a fire destroying your records. CPAs would present proof, like the Fire Department’s report for example, with any abatement request.

I’m a tax CPA with a virtual office to accommodate long distance clients. Personal, business, LLC, Corporate, non-profit, Partnership, and international forms like Form 2555 and Form 5471. For a free phone consult, call (910) 399-2705.

Here’s the IRS blurb, cut and pasted.

Here are eight important points about the two different penalties you may face if you file or pay late.

1. If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return on time and pay as much as you can, then explore other payment options. The IRS will work with you.

3. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent 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 percent of the unpaid tax.

5. If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

6. If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.

7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent 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 percent of the unpaid tax.

8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.


2 comments to Tax Penalty CPA explains IRS failure-to-file and failure-to-pay penalties | Business and Personal

  • MP

    I submitted my information to a CPA who told me he had filed my LLC reqeust for extension. Instead it turns out he only filed a personal extension and now I have a bill from the IRS for over $1000.

    When the returns were filed, no tax was due.

    He appealed to the IRS but they rejected it. Is it unreasonable to expect them to pay the penalty since they assured me everything had been filed?

    • When I hear about CPA problems it generally boils down to poor communications. Sorry for your problems. I don’t recall ever having the IRS not abating these fines when I’ve requested it – for client and occassionally our errors. If I was in the wrong, we’d pay the fine. But sometimes clients assume things and the CPOA doesn’t cover all the bases with an engagement letter. Maybe you could try a letter to the IRS? They might not back down for the CPA but they might for you.

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