There are several fines and penalties which are imposed on tax payers, in cases where the taxes are not paid in full, or paid late, or the return is filed late. In case a tax payer is not able to file in time, due to a reasonable cause, the Internal Revenue Service (IRS) provides a certain extension for filing tax.
Extension in such cases is to be supported with sufficient cause and proof, as per the instructions of the IRS. When availing an extension is not possible, the IRS makes sufficient provisions. It must be noted that any kind of late filing, without notice, is penalized. The month of January is the best time to commence the process as it gives you adequate time.
The IRS enforces a three-step procedure to ensure minimal evasion of tax.
- The first step to enforcement is conveying the three different dates that signify the deadline till which the forms can be filed, with or without extension. The IRS officials proceed to enforce step two, once the final submission deadline is breached.
- The IRS sends a Notice of Tax Due and Demand for Payment to the concerned person. They can ask the tax payer to pay his dues, along with penalties, by suggesting several financial remedies. The officials may go to the extent of requesting the tax payer to avail a loan to pay his dues.
- The next step is the enforced collection action, typically being a federal tax lien which involves attaching the property of the tax payer.
There are several further implications that the IRS might initiate in collaboration with the Department of Justice; these measures are quite harsh and to some extent mortifying.
Penalties are applicable, whether the return is online or in material form. Note that this penalty structure may change or may not be applicable for everyone, hence it is always better to confirm.
- Return Filed, Tax Not Paid Fully: When the return is filed and the taxes are not filed fully, a penalty of 0.5% of the tax owed for every month is imposed. The total percentage of penalty can go up to a limit of 25%.
- Return Not Filed and Balance Not Paid: In such instances, the fine is 5% of the tax owed, plus 0.5% of the balance unpaid for every month. The late filing penalty is imposed for 5 months, but can go beyond that. In cases where no due is paid even after 5 months, the penalty continues till it reaches the 25% limit.
- The 25% cap applies to the 5% late filing penalty and the 0.5% late payment penalty together.
- The IRS permits an installment payment of taxes. In such a case, the Form 9465 is filed and 0.25% of unpaid tax is imposed as a penalty.
Please check all the provisions relating to the extension and installment payment plan. Refer to the IRS website in case you have any difficulty or query.