Skip to main content

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

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 :,,id=236227,00.html

Popular posts from this blog

Keys to a Successful Offer in Compromise | Nicholas Hartney, EA | Genesis Tax Consultants, LLC ©

Keys to Unlock a Successful Offer in Compromise ©by Nicholas Hartney, EA © of Genesis Tax Consultants, LLC©*Updated Article 2018 Here
Contact me: Nicholas Hartney Licensed to Represent Taxpayers Before the IRS 
The Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s liability for some amount which is less than the full amount due. The IRS has the authority to settle or compromise federal tax liabilities by accepting less than full payment under certain circumstances.

The taxpayer makes an Offer in Compromise on Form 656. If the IRS accepts the Offer in Compromise, then a contract is formed in which the IRS agrees to cancel the tax debt in return for the payment of the agreed sum. The IRS has a whole set of rules, policies and procedures which govern when it will accept an offer.

Unfortunately, you just don’t offer to pay them 10, 25, or 50 cents on the dollar. They look at your offer, compare it to their guidelines and then either accept it, rej…

2010 IRS Nationwide Tax Forum San Diego Review

The 2010 IRS Nationwide Tax Forum was nicely set up and had some great presentation speakers.

Some of the highlights discussed from the forum:
There were almost one million federal tax liens filed in 2009.The National Taxpayer Advocate's Office discovered that federal tax liens drop your credit score 100 points as soon as they are filed.  The investigation also found that the three major reporting credit agencies, Experian, Equifax, and Transunion, do not remove tax liens for years, if at all, even after the tax has been paid.  The Fair Credit Reporting Act allows the agencies to keep the lien on your credit report for up to 7 years after payment in full.  Regardless of this Act for some reason the investigation found that Equifax keeps liens on your report for up to 15 years, Experian keeps the liens on your report for 10 years, and TransUnion indefinently!  Federal Tax Lien filings went up 475% over the past 10 years.Bankruptcy on back taxes are dischargable in a bankruptcy 3 year…

Preparing IRS Form 1045 Tentative Carryback Application or Carryback Claim Net Operation Loss (NOL)

Preparing Form 1045 to apply a tentative carry-back loss is ridiculously complicated for most people.  Even seasoned tax prepares have difficulties preparing this form. 

If after you filed an amendment to your tax return (Form 1040X) and the IRS sends you a notice requesting that you now file Form 1045 you should consider calling someone for help!  I filed one of these forms back in June for a client of mine and just received notice that it was approved, lowering the taxpayer's liability down from $8492 to $2900.

You may want to contact me on this.

If you wanted to try to tackle the 1045 yourself here are the instructions:

Department of the Treasury
Internal Revenue Service 2010
Instructions for Form 1045
Application for Tentative Refund
Section references are to the Internal Definitions connection with gambling, the racing
Revenue Code unless otherwise noted. of animals, or the on-site viewing of
Eligible loss. For an individual, an such racing, and the portion of any