The Internal Revenue Service (“IRS”) imposes penalty payments where a taxpayer owes taxes but doesn’t file on time (“late filer”) or the taxpayer files on time but does not timely pay the taxes owed (“late payer’).  Tax law imposes penalties coupled with the tax due and the interest on the amount due.  The late filer is subject to penalties 4.5% of the monthly tax owed or a portion of the month, which the taxpayer’s return is late up to five months.  If the taxpayer’s tax return is more than 60 days late, the IRS imposes a late penalty of the smaller of $100.00 or 100% of the outstanding tax owed by the taxpayer.  In the case of a late payer, the IRS requires the payment of a late penalty equal to one-half percent of the monthly tax owed or a portion of the unpaid amount until payment in full or imposition of the 25% maximum tax penalty.  

In contrast, the IRS imposes interest payments on late or unpaid taxes, regardless to the reason.  The interest payments are calculated starting with the due date of the tax return and ending upon receipt of payment by the IRS.  Thus, taxpayers may be subject to these interest payments as a result of late tax return or as a result of erroneous mathematical calculations.  

Generally, the IRS will charge interest on any unpaid tax from the due date of the tax return until the date of full payment. The interest rate on unpaid Federal tax is determined and posted every three months. The interest rate is based on the federal short–term interest rate plus 3 percent (compounded daily).  

The IRS provides the taxpayer with some relief to the above penalties and interest payments.  This relief is usually describe as, “abatement” of penalties and interest.

However, the IRS will require that penalties and interest be paid in full before any abatement determination is made. Thus, once the taxpayer pays the unpaid tax, the interest penalty ceases and the taxpayer will not be subject to further accrual of interest.   

Clients are well advised that a request for an abatement of penalty must be based on cause and abatement of interest payments must be based on extraordinary circumstances, which requires the taxpayer to demonstrate undue delay by IRS personnel.  

Any abatement request, which should be writing, should be filed within the IRS time restrictions.  Clearly, it is to the taxpayer’s advantage for abatement purposes to correct any deficiency before is discovered by the IRS.

For more information or questions about your specific tax matter, please contact the office or click CONTACT US.

"The hiring of a lawyer is an important decision that should not be based solely upon advertisements.  Before you decide, ask us to send you written information about our qualifications and experience."