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Federal Failure to File or Pay Penalties

August 15, 2016

Federal Failure to File or Pay Penalties**

The number of electronic filing and payment options increases every year, which helps reduce your burden and also improves the timeliness and accuracy of tax returns. When it comes to filing your tax return, however, the law provides that the IRS and Department of Revenue can assess a penalty if you fail to file, fail to pay or both, or cause understatement of tax.  Here are important points about the different penalties you may face if you file or pay late or file incorrectly.

  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 and Department of Revenue 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. If Adjusted Gross Income is over $150,000 the payment must be 110% of your prior years tax.
  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.
  9. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
  10. The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20% of the net understatement of tax.
  11. You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10% of the correct tax or $5,000 for individuals.  For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 % (or if greater, $10,000) or $10,000,000.
  12. Penalty for negligence and disregard of the rules and regulations. “Negligence” includes (but is not limited to) any failure to
  • Make a reasonable attempt to comply with the internal revenue laws
  • Exercise ordinary and reasonable care in preparation of a tax return or
  • Keep adequate books and records or to substantiate items properly.
  1. The Civil Fraud Penalty is assessed if there is any underpayment of tax on your return due to fraud. A penalty of 75% of the underpayment due to fraud will be added to your tax. The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.  If there is strong evidence of fraud it may be referred to the Internal Revenue Service Criminal Investigation Division for possible criminal prosecution.  Both civil sanctions and criminal prosecution may be imposed.
  2. For a Frivolous Tax Return or other frivolous submissions, you may have to pay a penalty of $5,000. If you jointly file a frivolous tax return with your spouse, both you and your spouse each may have to pay a penalty of $5,000. A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect. This penalty may also be assessed on a desire to delay or interfere with the administration of federal laws.  This includes altering or striking out the preprinted language above the space provided for your signature.  This penalty is added to any other penalty provided by law.
  3. If you write a check to pay your taxes and the check bounces, the IRS may impose a penalty. The penalty is either 2 percent of the amount of the check – unless the check is under $1,250, in which case the penalty is the amount of the check or $25, whichever is less.

 Failure to File or Pay Penalties for Oregon

  1. Interest percentage rates 5% Annual .4167% Monthly .0137% Daily
  2. Deficiencies and Delinquencies will have an additional interest of 1/3 of 1% per month (4% yearly)
  • if not paid within 60 days after filing
  • If the Department of Revenue has assessed a deficiency and you do not pay within 60 days after Notice of Assessment
  • If you appeal to the Department of Revenue or have a hardship situation and you appeal to the Oregon Tax Court but have not paid the tax the interest rate will start after 61 days.
  1. Penalties 5%
  • 5% failure-to-pay penalty (5% of your unpaid tax) if not paid on the due date even if you have an extension of time to file

 

  • You will not be charged the 5% penalty if you meet all of these qualifications
    • File Form 40-EXT
    • Pay 90% of your tax after credits by the original due date
    • File your return within the extension period
    • Pay the balance of tax due when you file your return
    • You pay the balance of tax due when you file or within 30 days of the date of the bill you receive from the department.
  1. Penalties 20%
  • If you do not file your return within 3months after the due date (including extensions) the penalty is 20 % of the unpaid tax. This is in addition to the 5% failure-to-pay penalty
  • If it is determined that you have substantially understated your income on your return, you must pay a 20% penalty. Income more than $25,000 for C corporations and $15,000 for all others.  This is in addition to all other penalties provided by law.
  1. Penalties 100%
  • If you do not file returns for 3 consecutive years by the due date of the third year’s return (including extensions) you must pay 100% failure-to-file penalty on the tax due for each year. This means any refunds are lost and any balance due is doubled
  • If you file a return with the intent to evade tax, you must pay a fraud penalty of up to 100% of the tax due. You also could be charged with tax evasion, a class C felony.  You could be fined up to $125,000, serve a jail sentence, or both.
  1. Frivolous return penalty of $250.00 If you meant to deliberately delay or block administration of tax laws by
  • An argument, without any good basis, that there has been a violation of your constitutional rights
  • Reliance on a “gold standard” or “war tax” deduction
  • An argument that the 16th amendment to the U.S. Constitution was not properly adopted
  • An argument that “unenfranchised, sovereign, freemen, or natural persons” are not subject to tax laws.
  1. Post amnesty penalty
  • If you were eligible for the 2009 tax amnesty program and you did not participate, you must pay an additional 25% penalty. This penalty only applies to tax years 2007 and before
  1. Abusive Tax Avoidance Transactions (ATAT)
  • A penalty of 60% of a listed transaction understatement . This penalty is in addition to and not in lieu, of any other penalties
  • Failure to report a reportable transaction will result in penalties of $3,300 on individuals and $16,700 on corporations
  • Failure to report a reportable transaction on a listed transaction will result in penalties of $33,000 on individuals and $66,000 on corporations. In addition to these penalties, the statute of limitations in increased to nine years if the department finds that a return involves use of a listed transaction
  • A promoter of tax shelters may be assessed a penalty of 100% on gross income derived from promoting the shelter. This penalty is in addition to and not in lieu of any other penalties.

The bottom line is that you must report all your income, file your return and pay your tax by the due date to avoid interest and penalty charges.

 

** For the most recent fees, payments penalties and percentage rates. please visit:

IRS.gov under Pub 17

Oregon.gov under Pub 17.5

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