This is a question we’ve heard frequently from Taxpayers with an overdue IRS balance or an unfiled return: do penalties and interest stop since the IRS is backlogged anyway? The answer to that question is NO.
The IRS recently announced that they will suspend the issuance of more than a dozen standard letters, including automated collection notices normally issued to Taxpayers who owe tax and to Taxpayers who have unfiled tax returns.
This announcement comes at a time when the IRS has several million original and amended returns to process, still attempting to get caught up from the challenges the brought on by the COVID-19 pandemic. The reasoning was to minimize confusion – in the event a Taxpayer has filed a return or an amended return that the IRS has not yet processed, the Taxpayer may still be receiving notices stating otherwise if they don’t suspend the issuance.
However, for Taxpayers who have filed returns and owe balances, and for Taxpayers who have not yet filed overdue returns, the lack of IRS notices will not help. Penalties and interest will continue to accrue.
For Taxpayers who have not filed a tax return timely, the penalty is typically 5% of the unpaid taxes for each month that the tax return is late, not to exceed 25%. For Taxpayers who have filed but have not paid outstanding taxes owed, the late payment penalty is typically .5% of the amount of unpaid tax which applies for each month or part of a month after the due date with a maximum of 25%. If a Taxpayer is both a late filer and late payer, the penalty will generally not exceed 5% in any given month.
Interest is also charged on tax and penalties. Interest is compounded daily, meaning the interest is assessed on the previous day’s balance + interest. IRS interest rates are calculated quarterly – using the Federal short-term rate + 3%.
If you have unpaid taxes owed to the IRS or unfiled returns due to the IRS, don’t delay simply because you have not heard from the IRS. Penalties and interest continue to accrue. Bryson Law Firm, LLC is here to help in Lafayette, Baton Rouge, Shreveport, New Orleans, Austin, and Houston. Contact us today.
