Federal Tax Procedures & Penalties

Due dates (calendar year)

Partnership and S corporation: March 15 · Individual, C corporation, trust: April 15 · Exempt organization: May 15 · Estate tax: 9 months after death. Extensions: time to file, not to pay.

Estimated tax

• Individuals: no penalty if < $1,000 due; pay lesser of 90% current or 100% prior (110% if prior adjusted gross income (AGI) > $150,000).
• Corporations: < $500 due → none; 100% current or prior (large corporations: current only, after the first installment).

Taxpayer penalties

• Failure to file: 5% per month (max 25%). Failure to pay: 0.5% per month (max 25%). Same month → combined 5%.
• Accuracy-related: 20%. Substantial understatement (individual): > greater of 10% of correct tax or $5,000.
• Civil fraud: 75%; Internal Revenue Service (IRS) proves by clear and convincing evidence.
• Partial month = full month.

Preparer penalties

• Unreasonable position: greater of $1,000 or 50% of fee income.
• Willful or reckless: greater of $5,000 or 75%.
• Standards: undisclosed → substantial authority; disclosed → reasonable basis; tax shelter → more likely than not.

Exam traps

• Failure to file (5% a month) is ten times failure to pay (0.5%) — file on time even if you can't pay.
• Penalties are computed on the net tax due, after withholding and estimated payments.
• Reasonable cause can waive filing and payment penalties, and first-time abatement is available with a clean record.
• A return more than 60 days late faces a minimum failure-to-file penalty, even when little tax is due.