Late-Filing Penalties: RESISTANCE IS FUTILE

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To err is human and to forgive is divine. So they say. But when it comes to taxes, you better beware of those who make the rules. 

Raise your hand if you have ever made a mistake, or been late to an appointment, or missed a deadline. Thanks, now all of you readers can lower them. You think with all the rhetoric that is bandied about these days about protecting those in the lower strata of income, somebody would actually step up to the plate and do exactly that. Somebody should look out for those who are about to be run over and crushed by the juggernaut known as the Internal Revenue Code.  

Missing A Tax Filing Deadline

Let us take an example that is very common among taxpayers, especially low-income taxpayers. Occasionally, most of us might miss a deadline for filing taxes in a timely manner. Okay, this happens. Congress does not take kindly to those who do not follow the rules that they have established. In order to create an air of compliance and subrogation, Congress has implemented several code sections that impose penalties for not playing the game by their rules. One such penalty relates to filing your return late. Should this unspeakable breach of law occur, and you do not have a tax balance due, no harm, no foul. However, should you owe money when you file, then the IRS juggernaut begins to add as many penalties as Congress (you know them, you elected them) can impose to keep you in line and on the straight and narrow.

The Beloved Late-Filing Penalties

One such punishment is a late filing penalty. It has always been 5% of the unpaid balance, each month, up to a maximum of 25%. For example, if you have a balance due of, let’s just pick a random number of $1000 and you, for whatever reason, did not file your return on or before April 15th, and you accidentally forgot to file an extension (or you mailed it in and somehow it got lost amongst the 20-30 million other pieces of paper sent to the IRS), you will incur a penalty of $50 per month. 

Take this as another example. Let’s say you owe $464, and you file your return in July and pay the balance with the return.  This means you are 3 months late, and your penalty should be (5% x 464 x3 = 69.60).   This is an actual instance of someone who lives on a fixed income with little or no real assets to speak of. However, for 2020-2022, the friendly folk in Congress decided to subscribe to that time honored adage: “The beatings will continue until morale improves” theory, by creating a minimum penalty of $435. That means, this low-income taxpayer now owes $435 plus interest (another $10-$12) on a $464 balance. That is almost a 100% penalty. Wow!! (Note: This draconian penalty is only for those three years.)

But Wait, There’s More!

Just a side note, it does not stop there, because there is also a failure to pay, substantial understatement penalty and a failure to make estimated payment penalty that can heaped on top of the failure to file penalty, should the IRS so desire. But that is for another blog.

Understand, you never know when or where the taxman is going to strike.

In conclusion, get in line, fly right and don’t step out of line or you just might be told to go right or left by the taxman once the creaky wooden gates of that old cattle car are pried open and you are sent off to be indoctrinated into IRS compliance. Resistance is futile.

Gary is a graduate of the Marshall School of the University of Southern California. He founded and operates a boutique accounting firm dedicated to bringing high - quality tax preparation, tax planning and tax resolution services to individuals, small businesses, small nonprofits, family owned businesses and start-ups, at an extremely affordable price. Visit Gary Weiss CPA.