What is Failure-to-file and failure-to-pay penalties?
In short
The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month a return is late, up to 25%. The failure-to-pay penalty is 0.5% a month, also up to 25%.
Key takeaways
- When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay penalty, so the total is 5%.
- An extension of time to file doesn't extend the time to pay.
- Reasonable cause or first-time abatement can remove the penalties.
Example
A return filed 2½ months late with $10,000 unpaid: 3 months × 4.5% = $1,350 failure to file plus 3 × 0.5% = $150 failure to pay.
Where it's tested
REG: Federal Tax Procedures & Penalties — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
The accuracy-related penalty for negligence or substantial understatement of income tax is: