Monday

IRS Penalty and Interest Rates

What are the penalties and interest? Can they be avoided?

In 1989, the IRS revamped its tax penalty system. Before the reform, more than 150 overlapping tax penalties existed. Consequently, a single infraction could result in multiple tax penalties. Below are the current tax penalties for various infractions.

Infraction: Penalty


Late Filing

(If the tax return is more than 60 days late, the minimum penalty is the smaller of $100 or 100% of the tax owed.)

5% per month of the net tax due (maximum 25%)
Late filing due to fraud

15% per month of the net tax due (maximum 75%)

Late tax payments

0.5% per month of the unpaid tax due (maximum 25%) The 0.5% rate increases to 1% after the IRS issues a notice of intent to levy.
Negligence or disregard of tax rules and regulations

20% of tax underpayment
Fraud

75% of tax underpayment

Substantial understatements of income tax (tax underpayments that exceed the greater of 10% of the correct tax liability or $5,000) 20% of tax underpayment
Over valuations of 200% or more but less than 400% of the correct amount 20% of tax underpayment

Over valuations of 400% or more of the correct amount 40% of tax underpayment
Estate tax and gift tax under valuations of 50% or more of the correct valuation and if the tax underpayment exceeds $5000 20% of tax underpayment

Estate tax and gift tax under valuations of 75% or more of the correct valuation and if the tax underpayment exceeds $5000 40% of tax underpayment

Interest, compounded daily, is charged on any unpaid tax from the due date of the tax return until the date of tax payment. The interest rate is the federal short-term rate plus 3%.

That rate is determined every three months.

From         To          Interest Rate

1/1/2011 6/30/2011          4%
1/1/2010 12/31/2010        4%
4/1/09 12/31/09                4%
1/1/09 3/31/09                  5%
10/1/08 12/31/08              6%
7/1/08 9/30/08                  5%
4/1/08 6/30/08                  6%
1/1/08 3/31/08                  7%
7/1/06 12/31/07                8%
10/1/05 6/30/06                7%
4/1/05 9/30/05                  6%
10/1/04 3/31/05                5%
7/1/04 9/30/04                  4%
4/1/04 6/30/04                  5%
10/1/03 3/31/04                4%
1/1/03 9/30/03                  5%
1/1/02 12/31/02                6%
7/1/01 12/31/01               7%
4/1/01 6/30/01                 8%
4/1/00 3/31/00                 9%
4/1/99 3/31/00                 8%
1/1/99 3/31/99                 7%
4/1/98 12/31/98               8%
7/1/96 3/31/98                 9%
4/1/96 6/30/96                 8%
7/1/95 3/31/96                 9%
4/1/95 6/30/95               10%
10/1/94 3/31/95               9%
7/1/94 9/30/94                 8%
10/1/92 6/30/94               7%
4/1/92 9/30/92                  8%
1/1/92 3/31/92                  9%
4/1/91 12/31/91              10%

The current IRS interest rate can be found here : http://www.irs.gov/newsroom/article/0,,id=236227,00.html