IRS $435 minimum late filing penalty

[ejdtaxman]

Is this new? and assuming it is why is there not an Intuit alert about it? I'm kind of shocked I didn't hear about this in any seminars either.

The only reason I found out is I used the interest and penalty worksheet in the 2020 program and saw that figure. I then confirmed here: https://www.irs.gov/newsroom/irs-highlights-higher-penalties-for-some-tax-returns-filed-after-sept-1...

So if I understand correctly, if a return is filed more than 60 days late (accounting for extension), the lesser of $435 or 100% of the underlying tax will be charged as the late filing penalty - even if that exceeds 25%?

[Just-Lisa-Now- · Accepted solution]

I noticed it 2 summers ago when I had someone filing a late return, they owed $480 and the penalty was $435, crazy.

[IRonMaN]

That's not so bad.  Maybe after filing late once or twice they might get their act together and start filing timely.

[Taxprohere]

I'm pretty sure the "lesser of the two" amount was $210 a few years ago, increased to $435 for 2021 tax returns.  That will get people's attention.....oops, just checked, it was $435 at least for 2020 as well.

[Just-Lisa-Now-]

Pretty sure it was summer 2020 when my client came in to file 2018 and 2019 got nailed with the $435 on the 2019 return.

[ejdtaxman]

Probably not, since most preparers seem to be unaware or unconcerned about it, why would it cause taxpayers to file sooner? To be an effective deterrent, people have to be AWARE of it and it doesn't seem like that's happened on any large scale. 

Furthermore, to spring this on taxpayers in the height of a pandemic when a lot of people are out of work seems like pretty bad timing to me, so I think it is pretty bad and your attitude about it seems really inappropriate especially for someone that should be on the side of taxpayers. 

Maybe you should go work for the IRS. 

[ejdtaxman]

gross

[IRonMaN]

This forum is open to the world, not just Intuit customers.  Who in the world said that I don't work for the IRS?

[ejdtaxman]

fair enough. 

I thought it was just users of ProSeries or other intuit products but I guess anyone could theoretically use it. 

[IRonMaN]

Yup, if you have an internet connection and a keyboard you have access to this place.  Something we have complained about for years, but Intuit doesn't really care.  To be honest, based on some of the questions that come up here, it really wouldn't be a bad place for the IRS to get some leads on some bad preparers 😁

[joshuabarksatlcs]

RE: To be an effective deterrent, people have to be AWARE of it and it doesn't seem like that's happened on any large scale. 

Example: IRS News Release 2020-207

IR-2020-207, September 10, 2020

WASHINGTON — The Internal Revenue Service today urged individuals who owe taxes but have not yet filed for 2019 to act now to avoid larger penalties that, by law, start after September 14.

The tax deadline was July 15 this year. Taxpayers who submitted an extension have until October 15 to file and do not face the failure to file penalty if they file their taxes by that deadline. But taxpayers need to remember that an extension to file is not an extension to pay. Any taxes they owed after the July 15 deadline are subject to the failure to pay penalty and interest.

Those taxpayers who didn't request an extension, and still owe taxes, face both the failure to file and the failure to pay penalties. They should file now and pay what they can before larger penalties take effect after September 14.

The penalty for not filing a federal tax return by the due date, or extended due date, is generally 5% of the unpaid tax for each month or part of a month that a tax return is late, up to 25% of the unpaid tax. However, if the return is more than 60 days late, a minimum penalty applies. If no return has been filed after 60 days, the minimum penalty that can be charged is $435 or 100% of the unpaid tax, whichever is less. This year, that important 60-day date occurs after Sept. 14. In addition to penalties, interest will also be charged on any tax not paid by the July 15 due date.

Remember, if a refund is due, no penalty is charged on the late return filed by a taxpayer.

But then, who cares about IRS news releases, right?

[ejdtaxman]

I know about the press release. I literally posted a link to that exact release in the OP. 

This is one press release in a sea of press releases and a lot of people will miss it. I know I did. I check the website periodically but not every single day and, like I imagine many do, I rely to a degree on CPEs and program alerts for changes in the code or regulations. 

The amount spent on making people aware of this, assuming the above release was the extent, was and is infinitesimal compared to that spent on the new qualifications for the EIC, CTC, the RCR. 

I literally took a CPE on tax resolution and penalty abatements which had a guest from the IRS and no one mentioned this. 

You expect me to take this one tiny press release seriously? Get out of here. 

[Taxprohere]

@ejdtaxman   

Your prior post has a mixed message: You expect me to take this one tiny press release seriously? 

Well, it's not a joke. It's real and the IRS assesses it.  

I agree, taxpayers don't pay attention to IRS news releases but we do, and having my clients avoid unnecessary penalties is why I inform my clients of something like this.

But I assume you too, take proactive steps being so informed, to pass this information along to your clients to save them this late penalty (a harsh one IMO especially right beyond the 60 day mark.)

[joshuabarksatlcs]

We float on a sea of tax info while assisting our clients in their compliance and planning. 

@ejdtaxman, first, that was an example, showing the info was out there.  Second, I don't know about you, but (1) I have been aware of the minimum amount (at $210)  for years; and (2) I have zero recurring client who filed late in at least the past five years.  So, do I need to tell my clients about this piece of info?  Do I want the CPE instructors (including the 110 hours of @IRonMaN's posts that I CPE'd with) to waste time dissecting this?

As for non-filer clients, for whom I assist in their compliance, I'd wait for them to get the penalty bill.  The minimum charge is perhaps #224 of their concerns when they first walked in. 

Now, for practitioners who deal with habitual late filers, I encourage them to act accordingly. 

As for me, before I "get out of here" I would rather concentrate my energy in informing my clients on important things, like how to get the ACTC info, or how to get the money back on the EIP debit cards that they'd thrown away.

I once had a partnership client who filed late and got big time penalties.  The second time he filed late a few years later, I fired him after the catch-up filing.   I wasted zero minute in showing him how the penalties were computed.

[joshuabarksatlcs]

Remember, if a refund is due, no penalty is charged on the late return filed by a taxpayer.

Shop talk:

The above was part of IR-2020-207, but I suspect it was technically wrong. 

The Failure to File penalty is computed based on the underpaid amount as of the original due date.

Say, original due date 4/15.  Extension filed with no payment.  Payment $5,000 made in October.  Return filed in January  (90 days late counting extension)  Refund of $1,000.  Technically, a refund is due on the return, but I believe failure to file penalty is applicable - computed based on $4,000.

@IRonMaN  since i don't know if you also work for the IRS, could you check the above with your colleagues that I don't know whether you have?

[ejdtaxman]

You misunderstood, perhaps my fault. 

Of course it's real and the IRS assesses it. I wrote that in the context of people including practitioners, being aware of it. A lot of us won't see it. 

Yes, I was aware of the $210 minimum. I was not aware of the new minimum until today. 

Seems insane to me. thats it. 

over and out. 

[TaxGuyBill]

---

@ejdtaxman wrote:

Yes, I was aware of the $210 minimum.

---

The "Taxpayer First Act" (July-ish 2019) first increased it to $330 for 2020 returns.  But before that could even take effect, the Appropriations Act of 2020 (December-ish 2019) increased it to $435 for 2020 returns.

[taxiowa]

If you don't believe the IR press release memo you noted, you could look to the big book.  US tax code.  Section 6651 I think also details the $435 penalty for failure to file for 60 days. 

[ejdtaxman]

sigh

It's not that I don't believe it. Why wouldn't I? 

I just think it's not enough notice and isn't talked about enough. 

thats all. 

[ejdtaxman]

interesting. did not know that.

thanks

[sjrcpa]

1040 instructions page 82.

[BobKamman]

After filing late once, they can use their "Get Out Of Jail Free" one-time abatement card.  And since when is it our job to tell clients the penalty for not filing on time?  I think by now everyone knows April 15 (sometimes, 16, 17, or 18) is what the law requires.  Do we also have to tell them not to exceed the speed limit on the way to the office (sometimes, at least by not more than 10 mph). 

But we should probably know the rule well enough that if they are 55 days past the due date, they should use a faster delivery service than First Class Mail, since that often takes more than a week now.  

[sjrcpa]

" Do we also have to tell them not to exceed the speed limit on the way to the office (sometimes, at least by not more than 10 mph). "

Maybe. Years ago I had a client come to the office to pick up his extension payment vouchers which were for several hundred thousand dollars. He was late for his appt. He was driving his Jaguar and got a speeding ticket on the way.

[joshuabarksatlcs]

"He was driving his Jaguar and got a speeding ticket on the way."

When I started my practice, we signed a 5-year lease in a downtown office building next to the convention center.  In about two years, the convention center started a renovation/expansion project.  It was daytime construction, nighttime theater or symphony.   Meaning there was hardly any public parking in the vicinity.  So, instead of them late-filing penalties, we had to constantly warn our clients about "don't even think about parking on the street", as it was red zone all over and the meter maids worked very hard.

One of our older clients claimed she always got lucky.  She must have visited our office over ten times in those few years.  Zero ticket for ten+.  I would look outside the window, and there it was, her old silver Mercedes parked right next to the red curb.  No ticket....  We moved as soon as the lease was up.  Shortly after that, the sweet, lucky, ticket-free lady passed away.  How I miss her every tax season.  Or every time I get a parking ticket. 

[BobKamman]

Reminds me of the now-defunct Chicago board of movie censors, which was made up mostly of widows of local politicians.  Maybe your client was related to the Parking Commissioner.  

[joshuabarksatlcs]

"Were you related to the parking commissioner?"

I shall bring this question to my after-life and ask when I see her.