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Penalties for Filing Late: A Comprehensive Guide
Basic Late Filing Penalty Structure
The IRS charges penalties when you file your tax return late. The penalty for filing late is 5% of the total tax assessed that was not paid when due. This penalty is charged for each month or part of a month the return is late, for up to 5 months. IRS – Notice 746: Information About Your Notice, Penalty and Interest This means the maximum late filing penalty can reach 25% of the amount required to be shown as tax on the return. Dawson U.S. Tax Court Opinions: Kevin Dean Chaffee
For tax returns required to be filed in 2024 that are more than 60 days late, there is a minimum penalty that applies. This minimum penalty is the smaller of the tax due or $485 (adjusted for inflation). IRS – Instruction 1120-PC: Instructions for Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
How the Late Filing Penalty Works with the Late Payment Penalty
When both late filing and late payment penalties apply in the same period, the IRS provides some relief. IRC 6651(c)(1) provides that the penalty for filing late under IRC 6651(a)(1) is to be reduced by the amount of any penalty for paying late imposed under IRC 6651(a)(2) for any month or part of a month during which both penalties apply. The penalties are said to be running concurrently. IRS IRM 8.17.7 Penalties/Additions to Tax in Computations
However, this reduction does not reduce the total penalty for filing late below the minimum penalty, if applicable. IRS IRM 8.17.7 Penalties/Additions to Tax in Computations
Example of How Penalties Are Calculated
Here’s an example of how the IRS calculates the failure to file (FTF) penalty when both the FTF and failure to pay (FTP) penalties apply:
For a net amount due of $500.00 (with a return due April 15, 2006, but filed December 2, 2006), the Failure to Pay Penalty would be $500.00 × 1/2 of 1% for 8 months, which equals $20.00. IRS IRM 8.17.7 Penalties/Additions to Tax in Computations
Reasonable Cause Exception
The IRS determined that taxpayers may be liable for the section 6651(a)(1) late-filing penalty when they fail to file by the deadline. However, this penalty can be avoided if the failure to file on time is due to reasonable cause and not due to willful neglect. The burden of proof that this exception is applicable is on the taxpayer. Dawson U.S. Tax Court Opinions: Tom Domingo & Donna J. Domingo
The penalty will not be imposed if you can show that the failure to file on time was due to reasonable cause. IRS – Instruction 1120-PC: Instructions for Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
For example, in one Tax Court case, a return was filed after the April 15 deadline. The taxpayer credibly testified that they thought their tax preparer had filed an automatic extension form, and the tax preparer also testified that they had filed the form. The court determined that the taxpayers had reasonable cause for thinking the extension had been filed, and therefore had reasonable cause for filing their return after April 15. As a result, they were not liable for the section 6651(a)(1) penalty. Dawson U.S. Tax Court Opinions: Tom Domingo & Donna J. Domingo
Late Filing Penalty for Information Returns
For information returns, the Late Filing Penalty is tiered based on when the returns were filed:
- Tier 1: Not more than 30 days late
- Tier 2: 31 days late through August 1
- Tier 3: After August 1 IRS IRM 4.19.25 Information Return Penalty (IRP) Procedures
The maximum penalty rates for information returns have increased over time:
- TY 2010 through 2014: $100 per information return
- TY 2015 through 2017: $260 per information return
- TY 2018 through 2019: $270 per information return
- TY 2020 through 2021: $280 per information return
- TY 2022: $290 per information return
- TY 2023: $310 per information return
- TY 2024: $330 per information return IRS IRM 4.19.25 Information Return Penalty (IRP) Procedures
Tiered Penalty Structure for Information Returns
If you correctly file information returns more than 30 days after the due date but by August 1, the penalty is $30 per information return, with a maximum penalty of $150,000 per year ($50,000 for small businesses). Rev. Proc. 2005-49
If you file information returns after August 1 or you do not file required information returns at all, the penalty is $50 per information return, with a maximum penalty of $250,000 per year ($100,000 for small businesses). Rev. Proc. 2005-49
Intentional Disregard Penalties
If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $100 per information return with no maximum penalty. Rev. Proc. 2005-49
For example, if an employer fails to file Forms W-2, the IRS can propose and assess either a failure to file (FTF) penalty with intentional disregard or a late filing penalty for late filed Forms W-2. The employer will be assessed a FTF penalty if the failure was due to intentional disregard. IRS IRM 5.1.15 Abatements, Reconsiderations and Adjustments
Special Penalties for Specific Types of Returns
Exempt Organizations
For exempt organizations that file their returns late, the IRS charges a specific penalty. For Forms 990, 990EZ, and 990PF, the penalty is $25 a day for each day your return is late, if your gross annual receipts are equal to or less than $1,274,000. The penalty may not be more than $12,500 or 5% of your gross annual receipts, whichever is less. IRS – Notice 746: Information About Your Notice, Penalty and Interest
If your gross annual receipts exceed $1,274,000, the penalty increases to $125 a day for each day your return is late, with a maximum penalty of $63,500. For all other forms, the penalty is $10 a day for each day your return is late. IRS – Notice 746: Information About Your Notice, Penalty and Interest
Employee Benefit Plans
Plan administrators who fail to timely file Form 5500 series annual returns/reports can be subject to penalties under both Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Code. The Secretary of Labor has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail or refuse to file complete and timely annual reports. Notice 2014–35
In addition, the IRS may impose penalties against plan administrators and employers that fail to file complete and timely annual returns. Section 6652(e) generally provides that in the case of any failure to file a return or statement required, the late filer shall pay, upon notice and demand, a penalty of $25 for each day the failure continues, up to $15,000 per return or statement. The IRS may also impose penalties for a failure to satisfy other reporting requirements. Notice 2014–35
Plan Mergers or Consolidations
There is a specific penalty for the late filing of a Form 5310-A to report a plan merger or consolidation, spinoff, or transfer of plan assets or liabilities. The penalty is $250 a day for each day the Form 5310-A is late (up to a maximum of $150,000). The form is considered late if it is not filed at least 30 days before the plan merger or consolidation, spinoff, or transfer of plan assets or liabilities. IRS – Instruction 5310-A: Instructions for Form 5310-A, Notice of Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities; Notice of Qualified Separate Lines of Business
Penalties for Foreign Account Reporting
For failures to comply with foreign account reporting requirements, if the failure continues for more than 90 days after the day on which the Commissioner or his delegate mails a notice of the failure to the specified person required to file, the specified person is required to pay an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each such failure. Tresuary Reg. 1.6038D-8
Similarly, for failures to report foreign business entities, if the failure continues for more than 90 days after the day on which the Secretary mails notice of such failure, the person shall pay a penalty (in addition to the initial $10,000 penalty) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. The increase in any penalty under this paragraph shall not exceed $50,000. IRC § 6038(b)
Timely Filing Rules
It’s important to note that taxpayers meet the requirement to timely file if the form is properly addressed and mailed on or before the due date, according to IRC 7502. This is known as the “timely mailing as timely filing” rule. IRS IRM 4.19.25 Information Return Penalty (IRP) Procedures
Late Filing Penalty for Individual Income Tax Returns
A late filing penalty is usually charged if your return is filed after the due date (including extensions). It is usually 5% of the tax not paid by the regular due date for each month or part of a month your return is late. Generally, the maximum penalty is 25%. IRS – Form 2350: Application for Extension of Time to File U.S. Income Tax Return
How to Avoid Late Filing Penalties
To avoid late filing penalties, you should:
- File your return on time, even if you cannot pay the full amount due
- Request an extension of time to file if you need more time
- Ensure you have reasonable cause if you file late
- Keep good records to demonstrate reasonable cause if necessary
In the case of failure to file a return within the prescribed time, a certain percentage of the amount of tax (or a minimum penalty) is added to the tax unless the failure to file the return within the prescribed time is shown to the satisfaction of the district director or the director of the appropriate service center to be due to reasonable cause and not neglect. Tresuary Reg. 601.104
Conclusion
Filing your tax returns late can result in significant penalties that increase the longer you wait to file. The basic penalty structure is 5% per month up to a maximum of 25% of the unpaid tax. However, different types of returns may have different penalty structures, and there are special rules for information returns, exempt organizations, employee benefit plans, and foreign account reporting.
The best way to avoid these penalties is to file on time or request an extension if needed. If you do file late, you may be able to have the penalties abated if you can demonstrate reasonable cause for the late filing. Remember that even if you file an extension, you still need to pay any taxes due by the original deadline to avoid late payment penalties and interest.
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