Question

Jacob files his 2018 tax return on August 27, 2019. Jacob had obtained an automatic 6 month extension to file his return on April 15, 2019. When Jacob files his taxes on August 27, he also includes a check for $4,000, which is the balance of the tax owed. Disregarding the interest element, what is Jacob’s total penalties assuming Jacob was not negligent or fraudulent.

Answer 1

As per IRS, failure to file penalty of 5% per month to a maximum of 25% of tax owed, if return is not filed within due date or extended due date.

Secondly, failure to pay penalty of 0.5% per month to a maximum of 25% of tax owed, if tax is not paid within original due date upto 90% of tax due.

Thirdly, combining both penalty failure to pay and failure to file , there is a maximum of 5% capping of per month for both penalty.

In case of extension applied, failure to file penalty is waived off upto new extended date, but failure to pay penalty apply at 0.5% per month, full month is counted for part of month.

There is total 5 month delay in payment for April, may, June, July, August, so a penalty of 0.5% x 5 months x $4000 , that is $100 for failure to pay.