IRS Penalties – Late Filing Penalty, Late Payment Penalty & Late Payment Interest.
Taxpayers may apply online for a payment plan of 120 days, 180 days or 72 months (fees, penalties and interest may apply). See IRS Topic 202 Tax Payment Options
Form 1040 & Form 1120 late filing penalty generally is 5.0% (or 4.5%) of the taxes remaining unpaid as of the unextended due date for each month or part of a month that a tax return and payment of tax is late (which is effectively a 60% (or 54%) per annum rate). The month ends with payments received and processed by the IRS on or before the 15th. This penalty maxes out after five months or 25% (or 22.5%) of the unpaid taxes. The IRC §7502 “timely mailing = timely filing” rule does not apply for this penalty. See §6651(a)(1) and §6651(b)(1) and §301.6651-1(a). See our page On Extension – Estimated Tax for more related information.
When late filing, if you still had some unpaid income tax and you filed more than 60 days late, the IRS further assesses a minimum penalty, as described on their website.
Example 1: Total tax on a late filed Form 1040 is $100,000, and there were no withholding or estimated taxes or credit elect payments made, resulting in the full $100,000 remaining unpaid as of April 14th. If $90,001 of this balance is paid on April 15th then generally no late paying penalty is due under any circumstances, no matter how many months pass; but a late filing penalty of $500 per month is due until the Form 1040 is filed. (up to a maximum of $2,500). Note that making subsequent payments of the remaining $9,999 taxes due in this example have no bearing on the computation of the late filing penalty (see IRS Regs § 301.6651-1(d)(1))
(rough) Example 2: But if the remaining unpaid balance of $90,001 in the above example subsequently is paid in full on April 20th then a late paying penalty of $500 for one month and a late filing penalty of $4,500 for one month plus another $5,000 for each succeeding month is due until the Form 1040 itself is actually filed. (up to a maximum of $25,000). The “timely mailing = timely filing” rule applies if the $90,001 accompanies a Form 4868 extension postmarked by April 15th. Otherwise generally, the $90,001 must be actually received and processed by the IRS by April 15th.
Example 3: Total tax on a late filed Form 1040 is $100,000, and there were no withholding or estimated taxes or credit elect payments made, resulting in the full $100,000 remaining unpaid as of April 15th. If nothing is paid until the Form 1040 is filed then a late filing penalty of $4,500 per month is due (up to a maximum of $22,500). There also is a late paying penalty of $500 per month.
Form 1040 & Form 1120 late paying penalty is 0.5% of the unpaid taxes for each month or part of a month that a tax return is late (6% per annum). The month ends with payments received and processed by the IRS on or before the 15th. This penalty does not max out. The “timely mailing = timely filing” rule does not apply for this penalty. This penalty does not apply prior to April 15th, nor does it generally apply between April 15th and October 15th if a valid extension of time to file is obtained and at least 90% (85% for 2018 / 80% for 2018 tax returns) of the total tax shown on the initial Form 1040 was paid by April 15th. See §6651(a)(2) and Treas. Reg. §301.6651-1(c)(3) and (4) and IRM 20.1.2.1.3.1(6), if it is paid
When both of the above penalties apply to the same month, only 4.5% (rather than 5.0%) + 0.5% is assessed per month.
When filing 60 days late (whether June 15th or December 15th depending on if an extension is granted) an additional penalty of up to $135 is assessed.
IRS’s Eight Facts on Late Filing and Late Payment Penalties
Form 1040 late paying daily interest rate varies. For 2018 and 2019 it is a 6.0% or 5.0% annual rate and for 2020 it is a 5.0% or 3.0% annual rate assessed monthly against the unpaid taxes for each month or part of a month that a tax return is late. The month ends with payments received and processed by the IRS on or before the 15th. This interest does not max out. The “timely mailing = timely filing” rule does not apply for this interest. This interest can apply prior to April 15th due to underpayment of estimated taxes and it applies after April 15th on the unpaid balance.
Form 1065 (partnerships and many LLCs) & Form 1120S – March 15 due date, with an extension available until September 15 by filing IRS Form 7004. The late filing penalty is $200 per Schedule K-1 for each month or part of a month that a tax return is late. The month ends with tax return received by the IRS on or before the 15th. This penalty maxes out after twelve months or $2,400 per Schedule K-1. The “timely mailing = timely filing” rule does not apply for this penalty. Rev. Proc. 84-35 may possibly be relied on to avoid Form 1065 penalties.
If the fully completed Schedule K-1 is not timely furnished to each owner, a $260 penalty for each such Schedule K-1 may be assessed, up to a maximum of $3,218,500. The penalty is $530 (and no maximum) if this requirement was intentionally disregarded.
Form 1041 – April 15 due date, with an extension available until September 30 by filing IRS Form 7004. The late filing penalty is 5% of the tax due for each month or part of a month that a tax return is late, up to a maximum of 25%. The month ends with tax return received by the IRS on or before the 15th or 30th. The “timely mailing = timely filing” rule does not apply for this penalty. Optional penalties include $210 and 75% and 100% of the tax due. Do not attach a reasonable cause explanation to a late filed Form 1041, rather wait for the penalty notification.
Form 1065 Instructions – Who Must File
Every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes Entities formed as LLCs that are classified as partnerships for federal income tax purposes have the same filing requirements as domestic partnerships.
Regs. §1.6031(a)-1(a)(3)(i) Return of partnership income. Special rule.
A partnership that has no income, deductions, or credits for federal income tax purposes for a taxable year is not required to file a partnership return for that year.
Form 1040 Instructions – Who Must File
Use Chart A, B, or C to see if you must file a return. U.S. citizens who lived in or had income from a U.S. possession should see Pub. 570. Residents of Puerto Rico can use Tax Topic 901 to see if they must file.
Form 1041 Instructions – Who Must File
Decedent’s Estate
The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:
1. Gross income for the tax year of $600 or more, or
2. A beneficiary who is a nonresident alien.
Trust
The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:
1. Any taxable income for the tax year,
2. Gross income of $600 or more (regardless of taxable income), or
3. A beneficiary who is a nonresident alien.
Forms 1099 – January 31 due date for Form W-2, W-3 and Certain Forms 1099-MISC. See IRS webpage: Increase in Information Return Penalties
Form 941 – Avoiding continuing cascading penalties Rev. Proc.2001-58