TAXPAYER NONCOMPLIANCE PENALTIES:
01.Core Concepts
EXAMPLE (1 OF 2) Several years ago, Deacon failed to file a tax return or pay his taxes. He owed $5,000 in taxes. Deacon’s tax return and his tax payment are both now 22 months overdue. Deacon is subject to a failure-to-file penalty of $1,250 (maximum 25% penalty x $5,000). He is also subject to a failure-to- pay penalty of $550 (0.5% x 22 months x $5,000). Fortunately for Deacon, because he is subject to both the failure-to-file and failure-to-pay penalties, the first five months of delinquency is subject to the maximum 25% penalty. Thereafter, the $5,000 unpaid balance is still subject to the 0.5% failure to pay penalty of $425 (0.5% x 17 months x $5,000), for a total combined penalty of $1,675 ($1,250 + $425).