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Delinquency tax penalties

The most common "delinquency tax penalties" are the Failure to Timely File Penalty and the Failure to Timely Pay Penalty.

Failure to timely file penalty

The failure to timely file penalty may be imposed if your return is not filed on or before the due date (including validly-filed extensions) for filing the return.

Your return will be deemed timely filed if it is mailed on or before the due date of the return. Thus, if you can prove that you mailed your personal income tax return by April 15, the return will be deemed timely filed - even if it was not received by the IRS for another few days.

Amount of tax penalties

The Failure to Timely File Penalty is calculated as 5% per month of the net tax required to be shown on your return - up to a maximum of 25% of the net tax due.

Thus, if after accounting for all withholding and estimated tax payments made, you owe $5,000 and you are three months late in filing your return, the late filing penalty will be 5% of $5,000 (or $250), times three months - for a total of $750. If you were ten months late, the penalty would be limited to 25% of the net tax due: $1,250.

Avoiding tax penalties

Obviously, the easiest way to avoid the Late Filing Penalty is to file your return on time. Even if you cannot pay the tax due, file the return on time. This will at least eliminate the Late Filing Penalty.

Sometimes people are unable to file their returns due to circumstances beyond their control. If you can show that your failure to file was due to "reasonable cause" rather than willful neglect or negligence, you might be able to convince the IRS to "abate" (waive) the penalty.

"Reasonable cause" means that you exercised ordinary business care and prudence in filing the return or in paying the tax, but you were still unable to pay or file.

However, what the Internal Revenue Service considers to be "reasonable cause" for failing to file on a timely basis is probably different from what you might guess. The IRS would most likely deem being in a coma, being kidnapped, or being abducted by aliens to be "reasonable cause" - but not much more. The feds set a high standard. Absent extreme circumstances, the IRS expects you to file on a timely basis.

To show "reasonable cause", you must furnish the IRS with a written statement setting out the grounds of your claim. The statement must contain a declaration signed under penalty of perjury and must be filed with the Internal Revenue Service office where the late return is filed.

Failure to timely pay penalty

This penalty is calculated at .5% (that is, one half of 1%) per month of the net tax required to shown on your return, to a maximum of 25% of the net tax due.

The Failure to File and Failure to Pay Penalties do not run together. Thus, if you both fail to file and fail to pay tax due, the maximum penalty to be applied will be 5% per month until the maximum 25% Failure to File Penalty is reached, and then .5% thereafter - until the combined total reaches 47.5% of the net tax due.

Keep in mind that the Internal Revenue Service treats a bad check as nonpayment.

The same "reasonable cause" standards apply to the abatement of the failure to pay penalty as to the failure to file penalty.

When to pay tax penalties

If you are subject to one of the delinquency tax penalties, you can either calculate and pay the penalty with your tax return - or simply wait for the Internal Revenue Service to assess the penalty and to send you a notice.

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