Ask The EDD Lawyer – The IRS Has A New Penalty For Late Filed Returns

By Robert S. Schriebman

March 9, 2016

Introduction

President Obama recently signed H. R. 644, the Trade Facilitation and Trade Enforcement Act of 2015 (Trade Act). As part of the Trade Act, Congress enacted a small but harsh new penalty for late filed returns. This article will explain this new penalty.

The New Failure To File Penalty

If you fail to file any tax return timely you’re subject to a penalty pursuant to IRC §6651. Traditionally this penalty has been a small percentage of the tax debt (5%) and a maximum of 25% of the tax liability.

The new penalty comes into effect if the return if filed more that 60 days after the due date or extended due date. The new maximum penalty is not less than “the lesser of $205 or 100% of the tax shown on the return.”

While the wording of the new law is confusing, the old minimum penalty amount was $135 or 100% of the tax shown on the return. Therefore it appears that Congress increased the minimum payment by $70.

By way of example, Mr. Jones did not get an extension for filing his 2015 individual income tax return, Form 1040. He did not have adequate withholdings from his job. He was supposed to file April 15, 2016. Jones files his return on October 15, 2016 erroneously believing he was on an extension. Mr. Jones will owe the IRS only $250. His minimum late filing penalty is $205. Coupled with interest as well as failure to pay penalty, Jones will owe more than $500!

Conclusion

While the new penalty might appear small, it is a relative thing. In reality, for many small taxpayers, the penalty is quite harsh.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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