Maxine Aaronson, Attorney at Law
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Tax Newsletter

  • Income Tax Limitations on the Charitable Deduction
    Taxpayers who make contributions to qualified charitable organizations are entitled to a tax benefit in the form of a charitable deduction on their income taxes. However, the issue becomes more complex when a non-U.S. citizen makes a... Read more.
  • Flexible Spending Accounts
    To provide some relief from rising health care and dependent care costs, federal tax laws authorize the establishment of “flexible spending accounts” (FSAs), sometimes known as “flexible reimbursement accounts.”... Read more.
  • Taxation of Long-Term Care Insurance
    People are living longer, but for many a reality of aging is that at some point they are unable to care for themselves. The costs of retirement homes and in-home care are rising, generating concerns for many on how to pay for the cost... Read more.
  • Valuation of Securities for Estate Tax Purposes
    In 2001, Congress passed legislation incrementally increasing the amount exempt from federal estate taxes and completely eliminating estate taxes in the year 2010. However, the legislation contains a “sunset” provision... Read more.
Tax News Links

Late Payment Versus Late Filing

Many taxpayers at one time or another find themselves in a situation where they either did not file their Federal Income Tax return on time and/or filed their tax return without making the necessary payment for the tax year covered. In either or both situations, the IRS may impose a failure-to-file penalty, a failure-to-pay penalty, or both.

Failure-to-File Penalty
The failure-to-file penalty is assessed to those taxpayers who did not file their tax returns on time, and who did not obtain an extension for the filing due date (or obtained the filing extension, but missed the extended due date). Such failure to file is subject to a hefty IRS delinquency penalty of 5 % per month up to a maximum of 25 % of the tax owed. If the failure to file is considered to be a fraudulent failure to file, the penalty is a much heftier 15 % per month, up to a 75 % maximum.

If you file more than 60 days late, there is a minimum penalty of $135 or 100% of the total tax, whichever is less.

Failure-to-Pay Penalty
The failure-to-pay penalty is assessed to those taxpayers who did not make their payments by the necessary due date. Such failure to pay is subject to an IRS late payment penalty of ½ % per month up to a maximum of 25 % of the total amount of unpaid taxes.

When the IRS assesses both penalties
In situations where both penalties are assessed, the failure-to-file penalty is reduced to 4 ½ % per month so that the combined penalty remains at 5 % per month. However, the 25 % maximum only applies for the first five months, after which the monthly penalties resume at ½ % for an additional 45 months, effectively adding 22 ½ % for a total maximum penalty of 47 ½ % on top of the original tax that must be paid.

Reasonable Cause
The IRS may agree to forego the imposed penalties if the offending taxpayer can show that the lateness was due to “reasonable cause” as opposed to “willful neglect.”