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Deadlines

Extensions

Individual and business taxpayers may file requests with federal and state tax authorities to extend the deadline for filing but should note that such extensions merely extend the deadline for submitting tax returns and all associated paperwork. Filing extensions does not extend the time for payment; therefore, interest and penalties will continue to accrue on any unpaid balances. Taxpayers are advised to contact the tax authorities to establish an installment plan or make other acceptable arrangements for payment in the event that any balance due cannot be paid in full in a timely fashion.

Estimated Tax Payments

Aware of the filing deadlines, most taxpayers comply, but are then occasionally surprised to receive subsequent invoices from various tax authorities for late payment. Separate penalties apply for late filing and late payment. To avoid the latter, the tax liability should be pre-paid by establishing proper wage withholdings or making timely estimated tax payments each quarter. Individual taxpayers may avoid the Late Payment (or underpayment) Penalty under the federal Safe Harbor Rule: more...

Penalties

Taxpayers may be subject to civil and criminal penalties for a variety of transgressions. Below is a partial list of the most commonly encountered federal penalties – Note that state tax authorities may independently assess separate (but similar) penalties as well. Interest Federal and state tax authorities may also assess interest in addition to penalties. While penalties may–under certain circumstances–be waived for reasonable cause, interest will generally not be abated. The IRS, for instance will eliminate the interest charge only if: • interest was assessed due to an unreasonable error or delay of IRS personnel in performing ministerial or managerial acts; • interest was accrued during a period for which a valid extension was granted in a federally declared disaster area; or • interest was charged on erroneous refunds issued by the IRS but repaid promptly by the taxpayer upon request. Use these link to access current interest rate information for the IRS. If you'd like to receive more information about Extensions, Penalties or Interest. Please call us at (248) 816-1220 or 800-276-8319 to set up a free consultation. Or Book Your Consultation here: We service clients worldwide.

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Penalties

Violation

IRC Code

Maximum Penalty

Late Filing / Failure to File a Return

§ 6651(a)(1)

5% of unpaid liability for each full or partial month that the return is late [maximum= 25%]. If the return is > 60 days late, the minimum penalty is $135. There is no penalty if the return shows a refund

Late Payment / Failure to Pay Tax

§ 6651(a)(2)

0.5% of unpaid liability for each full or partial month that the payment is late [maximum= 25%].

Underpayment of Estimated Tax

§ 6654

In addition to the Late Payment Penalty [see above], interest is assessed at the applicable federal rate for each day that the payment is late.

Accuracy-related Penalty

§ 6662

20% of underpaid liability due to: • Negligence – Failure to make a reasonable effort to comply with the tax law, including failure to keep adequate records or use ordinary and reasonable care in preparing a return; OR • Substantial Understatement – Applied if the understatement is > 10% of the correct tax and > $5,000; OR • Substantial Valuation Misstatement – Applied if the valuation is ≥ 150% of the determined value and causes a tax understatement > $5,000. (Penalty increases to 40% in the case of “gross valuation misstatement”.); OR • Substantial Estate or Gift Tax Valuation Understatement – Applied if valuation is ≤ 65% of the determined value and causes a tax understatement > $5,000. No penalty imposed if Taxpayer can show a reasonable cause.

Erroneous Refund Claim

§ 6676

20% of disallowed portion for which Taxpayer has no reasonable basis.

Frivolous or Incomplete Tax Return

§ 6702

$5,000, regardless of actual tax liability.

Willful Attempt to Evade Tax

§ 7201

This is a felony, punishable by $100,000 maximum fine, 5 years in prison, or both.