Tax Relief FAQ: How Does the IRS Compute Penalties For Delinquent Tax Returns?

Every year, hundreds of thousands (potentially millions) of taxpayers fail to file legally required tax returns. The longer people put off filing their tax returns, the more severe their IRS tax problems become. An important step in avoiding IRS tax trouble is to understand how the IRS approaches delinquent tax return penalties. Read on to learn more.


Question: I filed my tax return late and was shocked when I saw my tax bill. How does the IRS compute penalties?

Answer: Many, and shocking indeed, are the ways the IRS penalizes taxpayers for delinquent returns.

The IRS website features a Penalty Reference Chart nearly four pages long that details the dire consequences of not abiding by the tax laws. The two main penalty categories are Failure to File (FTF) and Failure to Pay (FTP).

Failure to File:

For FTF, the IRS charges 5 percent of the net amount due for the first month, and for each month, or fraction of a month that you do not file, with the amount not to exceed 25 percent of the net amount due. If the return is not filed within 60 days of its due date, the minimum you will be charged is $100 or 100 percent of the net amount due, whichever is less. The FTF does not start accruing if you have filed for a valid extension, but if you fail to file by the extension deadline, penalties begin accruing immediately.

Failure to Pay:

For FTP, the IRS charges .5 percent per month or fraction of a month, up to 25 percent of the net amount due. This penalty begins accruing immediately, even if you have a valid extension. And, in addition to these penalties, the IRS charges interest on all unpaid back taxes due.

These two basic penalty categories ratchet up whenever the IRS smells fraud or intent to evade, “substantially” or “grossly” underestimate (undervalue or otherwise misrepresent) the amount of tax you owe. Accuracy-related penalties are 20 percent of the underpayment in the case of “substantial” misstatement, and 40 percent of “gross” misstatement.

Fraudulent Failure to File:

In the case of Fraudulent Failure to File (with the intent to evade tax), the FTF is 15 percent per month, plus a 75 percent fraud penalty. Also note that, 10 days after the IRS sends out its Notice of Intent to Levy, it will increase the FTP penalty to 1 percent per month. The snowball effect of rolling penalties and accruing interest can soon bury an unwitting taxpayer, and the IRS will levy and garnish every asset it can find to pay the bill.

An experienced Certified Tax Resolution Specialist, tax attorney, or specialized CPA, in many instances, can negotiate tax-debt settlements with the IRS for those who qualify. The IRS requests that taxpayers have good reason for penalty abatement, and individuals who want to increase their chances of having their penalties forgiven should consider consulting with a qualified tax relief professional.


Learn more tax help tips at Tax Relief FAQs. You can also check out our archive of tax help articles to stay informed on the latest IRS news and tax relief advice.

Additionally, if you’re one of many taxpayers out there who are struggling with how to understand the complex IRS terminology, I highly recommend you take a look at our Tax Help Glossary. Don’t let IRS jargon stop you from getting the tax relief you need!

Tax Resolution Services is a team of expert tax attorneys, CPAs, and Certified Tax Resolution Specialists are here to help you with your IRS tax problems. Check us out at for a free tax relief consultation or call us today at (888) 699-7630.

More Tax Help, IRS News and Tax Relief Tips:

  1. It’s Not Too Late for Taxpayers with Unfiled Tax Returns to Resolve IRS Problems
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  3. Tax Help: How to Resolve Your Back Taxes & Prevent Tax Problems If You’re Short on Cash This Season
  4. Tax Help News: If You Don’t File Your Taxes, the IRS May File Them for You
  5. IRS Relief News: How to Determine if Bankruptcy is a Viable Tax Relief Option for Resolving IRS Back Taxes

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