Confiscatory Penalties
The IRS assesses penalties for filing late, paying late, frivolous returns, underpayment of tax, failure to file Information Returns and fraud. Fines can be mild or severe but may be assessed for late filings in spite of a filer’s good intentions. In addition the Service charges interest on taxes not timely paid and interest on the penalties.
- Late Filing. 5% of the tax due for each month late up to 25%. Returns filed 60 days after due date: the smaller of $100 or 100% of the tax due.
- Late Payment. ½ of 1% per month up to 25%. Combined late filing and late payment penalties are 5%.
- Fraud. 15% of the taxes due up to 75%.
- Frivolous Return. Up to $5,000.
- Interest. Rates vary quarterly but are set by IRS.
- Underpayment of Tax. Accuracy-related penalties of 20% or 40% of underpaid taxes can be applied due to negligence, disregard of rules or regulations or substantial understatement of income tax.
- Criminal Penalties. May be charged for tax evasion, willful failure to file a tax return or supply information, failure to pay taxes due, making false or misleading statements, or preparing a fraudulent tax return.
- Failure to File Information Returns.
o 114 (FBAR): $10,000 per year up to six years for failure to file. If failure is determined to be willful, the penalty can be $100,000 or 50% of the undisclosed accounts.
o Form 926: 10% of value of transfer up to $100,000.
o Forms 3520: 35% of gross reportable amount.
o Form 3520A: 5% of the gross value of trust assets.
o Form 5471, 5472 and 8865: $10,000 for failure to file plus additional $10,000 penalties after 90 days for each 30 day delay up to $50,000. The $10,000 penalty also applies to Schedule O of the 5471 form. Finally loss of the Foreign Tax Credit can significantly affect US tax liability if the 5471 is not filed.
o Offshore Voluntary Disclosure Program: 27.5% of highest aggregate value of late filed FBAR.
o Form 8938: $10,000 or after 90 days $10,000 a month up to $50,000. Failure to disclose certain transactions 40% of underpaid tax.
The IRS assesses penalties for filing late, paying late, frivolous returns, underpayment of tax, failure to file Information Returns and fraud. Fines can be mild or severe but may be assessed for late filings in spite of a filer’s good intentions. In addition the Service charges interest on taxes not timely paid and interest on the penalties.
- Late Filing. 5% of the tax due for each month late up to 25%. Returns filed 60 days after due date: the smaller of $100 or 100% of the tax due.
- Late Payment. ½ of 1% per month up to 25%. Combined late filing and late payment penalties are 5%.
- Fraud. 15% of the taxes due up to 75%.
- Frivolous Return. Up to $5,000.
- Interest. Rates vary quarterly but are set by IRS.
- Underpayment of Tax. Accuracy-related penalties of 20% or 40% of underpaid taxes can be applied due to negligence, disregard of rules or regulations or substantial understatement of income tax.
- Criminal Penalties. May be charged for tax evasion, willful failure to file a tax return or supply information, failure to pay taxes due, making false or misleading statements, or preparing a fraudulent tax return.
- Failure to File Information Returns.
o 114 (FBAR): $10,000 per year up to six years for failure to file. If failure is determined to be willful, the penalty can be $100,000 or 50% of the undisclosed accounts.
o Form 926: 10% of value of transfer up to $100,000.
o Forms 3520: 35% of gross reportable amount.
o Form 3520A: 5% of the gross value of trust assets.
o Form 5471, 5472 and 8865: $10,000 for failure to file plus additional $10,000 penalties after 90 days for each 30 day delay up to $50,000. The $10,000 penalty also applies to Schedule O of the 5471 form. Finally loss of the Foreign Tax Credit can significantly affect US tax liability if the 5471 is not filed.
o Offshore Voluntary Disclosure Program: 27.5% of highest aggregate value of late filed FBAR.
o Form 8938: $10,000 or after 90 days $10,000 a month up to $50,000. Failure to disclose certain transactions 40% of underpaid tax.
