Late filing

[okie1tax]

Bart, it may be 19th century but..

PRESENT LAW
Under IRC § 6651(a)(1), a taxpayer who fails to file a tax return before its due date (including extensions) will be subject to a five percent penalty for each month or partial month the return is late. This penalty generally accumulates for each month the return is not filed up to a maximum of 25 percent. The penalty is based on the amount of tax due, minus any credit the taxpayer is entitled to receive or payment made by the due date. The failure to file penalty applies to income, estate, gift, and certain excise tax returns. IRC § 6698 provides for a penalty for failure to file partnership returns, which is based on different criteria but also carries a reasonable cause component.10
IRC § 6651(a)(2) and (a)(3) also impose additions to tax for failure to pay taxes; however, only a small number of cases involved these penalties, and therefore, we have not included them in our analysis.
Doudney v. Comm’r, T.C. Memo. 2005-267; McManus v. Comm’r, T.C. Memo. 2006-57.
Leggett v. Comm’r, T.C. Memo. 2005-185.
IRC § 6651(a)(1).
IRC § 6654(e).
IRC § 6651(a)(1).
Id. The penalty is increased to 15 percent per month up to a maximum of 75 percent if the failure to file is fraudulent. IRC § 6651(f).
IRC § 6651(b).
IRC § 6651(a)(1).
10 IRC § 6698.

This is an excerpt from the Taxpayor Advocate's report to congress for 2006. So, it seems to be the law.

[Black Bart]

Sorry, Okie 1tax

Bart, it may be 19th century but...this is an excerpt from the Taxpayor Advocate's report to congress for 2006. So, it seems to be the law.

You're right, it's not 19th century, and I was just, as usual (and sometimes inappropriately), tryin' to wring a few laughs out of targets of opportunity. I didn't mean to snipe at you -- it's a good cite and thank you for your research.

[OtisMozzetti]

I agree we're agreeing.

we're agreeing (aren't we?) that, assuming you had either paid the tax before 4-15 or sent all of it with the extension, then the FTF penalty would not begin 'til 10-15?

I would agree that we're agreeing. Keep in mind that if the return is being worked on during September, so the taxpayer sends in some more money then, that won't help with the FTF penalty not unless the return is actually filed by 10/15.

[okie1tax]

Bart, I agree you were not sniping. It was just that I did not feel comfortable with the issue myself. I wasn't digging for you, I was trying to find something that made ME reasonably happy.

[JohnH]

Apparently there is a consensus that the Failure to File Penalty is based upon the months or portions of months late filed after the extended due date 10/15. Yet, there are two cautions:

1. You cannot simply say it is "computed from 10/15". It says in 4868 instructions that the penalty is based upon the tax not paid by the due date (without regard to extensions). In other words, the taxpayer cannot between 4/15 and 10/15 bring up his estimate of the tax liability in order to keep down the amount of the failure to file penalty.

2. It also says that "if [the IRS] later finds that the estimate of tax liability [made with Form 4868] was not reasonable, then the extension will be null and void." If that happens then, then the Failure to File Penalty goes all the way back to the original due date.

I agree that the taxpayer cannot bring up his estimate of the tax liability between 4/15/ and 10/15 to keep down the amount of failure to file penalty. In fact, if the 90% threshhold is missed, then nothing can reduce the FTP penalty aside from making an interim payment between 4/15 and 10/15, and even then the FTP penalty will apply between 4/15 and the date of the interim payment. The FTP penalty is based on actual liabilty vs actual amount paid at 4/15.

However, the FTP penalty is never really a problem - after all it's only 1/2 of 1%. All the taxpayer has to do in order to avoid or reduce the FTP penalty (assuming that is a concern to them) is to grossly overpay on 4/15. Technically they could choose to pay more than the estimate of their liabilty and apply the excess to estimated tax for the upcoming year when the return is filed, although that isn't how I would handle it - I would up the estimate of tax liabilty to make it equal to the overpayment because there is never a downside to over-estimating the liability on the 4868.

Under-estimating the tax liability itself is the problem. Under-estimating the liablity (regardless of how much or how little is paid with the extension), leaves the taxpayer subject to a subsequent invalidation of the extension and a retroactive application of the 5% per month FTF penalty, which is the only real risk in this entire scenario. I'll take my chances with the FTP penalty, unless the taxpayer has plenty of cash in the bank and just wants to cover all the bases. But I'm not taking any chances with the FTF penalty - there's usually too much at stake.

And in any case, I'm still firmly on the side of the FTF penalty beginning on 10/16 if the return is filed late (provided the initial estiate on 4/15 was reasonable based on the info available at the time).

[JON]

Thanks Otis

he does agree with my posting "way back". Now the question is if your extension does not include enough payment (90%) how often do all the penalties hit. Randomly at best in the old days. I can remember in the late 90s meeting with the IRS on topics and they said then they had been directed to start cranking up these penalites, FTPs and FTF, since regulations allowed it. For several years I told clients they may become subject to it and should pay more in with extensions. I remember one of my clients saying at extension time I have never been hit by those and I am not going to change. So in the past random would be the best description.

Now IRS has been given more money for audit and administration. The expectations are that for every dollar the IRS budget was increased it will result in $4 additional dollars will be collected. The IRS knows this and wants to show they can collect. So random may be changing. As the agents say we have to collect more.

[ED SMITH]

From page three of form 4868:

"A late filing penalty is usually charged if your return is filed after
the due date (including extensions). The penalty is usually 5% of
the amount due for each month or part of a month your return is
late. The maximum penalty is 25%."

Does this settle it.

[Black Bart]

Thanks very much Ed, but

From page three of form 4868:

"A late filing penalty is usually charged if your return is filed after
the due date (including extensions). The penalty is usually 5% of
the amount due for each month or part of a month your return is
late. The maximum penalty is 25%."

Does this settle it.

I'm afraid we'll have to decline your abbreviated, albeit generous, submission. It's too...too...well, it's just too short. See, we have taken a fairly simple question and transformed it into a lengthy (20-something replies/500+ views) full-blown tax issue/discussion. A full array of multiple postings have offered opinion, guess, debate, disagreement, doubt, vote, quote, frustration, cite, apology, agreement, speculation, and finally, a consensus.

Now...here you come along with a quick and dirty, four-line harpoon letting all the hot air and long-winded explanations out my balloon. Have you no shame?

You can see how it is, can't you? While your answer may indeed be 100% accurate, such a brief, simplified answer reduces my topic and the subsequent discussion to what George Costanza used to say of the Seinfeld show -- "It's about nothing!"

So no...no...it simply won't do. Nothing personal and no offense, but if you'd care to offer a lengthier explanation, perhaps more, um...Rube Goldberg-ish, then we'll reconsider.

P.S. Feel free to give me a cussin' if you want to.


___________________
"Rube Goldberg machines." -- Term for exceedingly complex devices that perform simple tasks in roundabout ways. So-named for its creator, Pulitzer Prize-winning cartoonist Reuben L. Goldberg (1883-1970).

[JohnH]

Besides, what kind of person actually READS the instructions?

If we were supposed to read the instructions, there would be instructions telling us to do that...