How to Compute Penalty & Interest easily and download PDF report

Internal Revenue Code §6651(a)(1) provides law for imposing penalty for failure to file your tax return @ 5% of unpaid tax required to be reported

>>Reduced by the “failure to pay” penalty amount for any month where both penalties apply

>>Charged each month or part of a month the return is late, up to 5 months >>Applies for a full month, even if the return is filed less than 30 days late

>>If any unpaid tax was required to be reported, a minimum penalty applies to income tax returns received 60 or more days late.
>>The minimum penalty is the lesser of the unpaid tax or: $205 — Returns due on or after Jan. 1, 2016.

AS can be seen there are so many conditions attached to computation of failure to file penalty .

Let us see now Failure to Pay penalty

Relevant Internal Revenue Code is §6651(a)(2) that imposes penalty when the tax due as per due date to file is outstanding . Conditions that one needs to take into account for computing the penalty for failure to pay the tax are :

>>0.5% of tax not paid by due date, April 15;

>>0.25% during approved installment agreement (if return was filed on time, and taxpayer is an individual);

>>1% if tax is not paid within 10 days of a notice of intent to levy

>>Recurring charge on the remaining unpaid tax each month or part of a month following the due date, until the tax is fully paid or until 25% is reached

>>Full monthly charge applies, even if the tax is paid before the month ends.

You can understand the complexity of computation of aforesaid two penalties .Maybe because of this , Taxpayer Advocate Service — 2013 Annual Report to Congress — Volume One mentions aforesaid provision as most litigated one . Here is a passage(page 386) from it

We analyzed 86 opinions issued between June 1, 2012, and May 31, 2013, where the failure to file penalty, failure to pay penalty, or estimated tax penalty was in dispute. All but seven of these cases were litigated in the United States Tax Court. A detailed list appears in Table 6 in Appendix III. Fifty-one cases involved individual taxpayers and 35 involved businesses (including individuals engaged in self-employment or partnerships). Of the 53 cases in which taxpayers appeared pro se (without counsel), tax-payers prevailed in full in one case, and six resulted in split decisions. Of the 32 cases in which taxpayers appeared with representation, taxpayers prevailed in full in two cases, and six were split decisions.

Easy IRS Penalty Calculator

irstaxapp.com , realizing the difficulty in computing the penalties for failur to pay and file has come out with a Beta release of irs penalty calculator