June 20, 2008 – 4:01 pm by
Alan
Tax day has come and gone, and your client either didn’t file at all, filed without paying your balance due, or filed and only paid part of your balance. Whether they need more time to file paperwork or more time to pay, here’s what to expect.
They filed on time but didn’t pay all of their balance due.
It is best to file on time and pay as much of the balance as possible. Why? Interest, compounded daily, is charged on any unpaid tax from the due date of the return until the date of payment. The interest rate is 7 percent for the first quarter of 2008; the rate is adjusted every three months. If your client filed on time but didn’t pay on time, they will generally have to pay a late-payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, up to 25 percent. The one-half of one percent rate increases to one percent if the tax remains unpaid after several notices have been sent to you and the IRS issues a notice of intent to levy.
They haven’t filed or paid their balance due.
If they did not file on time, and they owe tax, they may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5 percent late filing, 0.5 percent late payment) for each month, or part of a month, that the return is late. The late-filing penalty applies to both the tax shown on your return and any additional tax found to be due (reduced by withheld and paid tax amounts). The failure-to-file penalty is generally imposed for a maximum of five months. However, after five months, if they still have not paid, the 0.5 percent failure-to-pay penalty continues to run, up to 25 percent, until the tax is paid. So, the combined maximum penalty may be as high as 47.5% ((4.5% x 5 months) + 25%).
Please Note: 25 percent is not a total combined maximum. The maximums apply separately. Also, if the return is over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100 percent of the tax required to be shown on the return.
You Requested an IRS Installment Agreement
If you filed Form 9465 requesting an installment payment plan, and the IRS accepted the installment payment plan, they will charge you a $43 administrative fee, plus interest on the unpaid tax and your client will be expected to have the taxes paid by January 15th of next year. If they filed a timely return and are paying your tax due according to an installment agreement, the penalty is one quarter of one percent for each month, or part of a month, that the tax remains unpaid.
Share this post:
These icons link to social bookmarking sites where readers can share and discover new web pages.
Posted in Uncategorized | No Comments »
