IRS Lawyers

IRS Extends the 2011 Tax Return Filing Deadline to April 17, 2012

On January 4, 2012, the Internal Revenue Service announced that the taxpayers will have until  April 17, 2012 (Tuesday) to file their 2011 tax returns and pay any tax due.  This is because April 15, 2012, falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16, 2012.  Since, according to federal law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do, all taxpayers will have two extra days this year to file their 2011 tax returns.  Note, however, that taxpayers requesting an extension will have until October 15, 2012, to file their 2011 tax returns; there is no change in the filing date here.

The IRS will begin accepting e-file and Free File returns on January 17, 2012. Additional details about e-file and Free File will be announced later this month.

Tax Lawyer Minneapolis | Common Tax Penalties and Interest: The Basics

Penalties and interest may be impose

d by the IRS relating to various tax underpayments. Taxpayers should understand some of the basic tax penalties detailed in this article (many of which can be quite sever) in order to avoid such penalties if possible, and to perhaps mitigate any imposed penalties.

Accuracy-Related Penalties

An accuracy-related penalty of 20% of a tax underpayment may be imposed by the IRS if the underpayment is attributable to one or more of the following: (1) negligence or disregard of the rules and regulations; (2) any substantial understatement of income tax; (3) any substantial valuation overstatement; (4) any substantial overstatement of pension liabilities; and/or
(5) any substantial gift or estate tax valuation understatement.

Late-Filing Penalty

If a taxpayer files a late tax return, unless he/she can demonstrate “reasonable cause” to the IRS for not filing on time, a late filing penalty of 5% of the net tax due for each month the return is due, up to five months (25% maximum) can be imposed. In addition, there is a minimum
penalty, equal to the lesser of $135 or the net amount required to be shown on the tax return, for returns that are more than 60 days late (including extensions).

The late filing penalty does not apply if a return is filed late but no taxes are owed.

Failure to Pay Penalty

In general, if a taxpayer is late in paying taxes owed, the IRS can impose a failure to pay penalty of 0.5% (0.5 of 1%) upon the net amount of tax due and unpaid by the due date. The penalty begins on April 16th, and stops accruing when the IRS receives the payment amount. The maximum penalty that can be imposed is 25%.

Combined Penalties

Taxpayers may also be subject to combined penalties, with special rules. For example, if both late-filing and late-payment penalties are imposed on a taxpayer, a combined penalty of 5% per month will be applied for the duration in which both penalties apply at the same time (maximum penalty of 25%). The combined penalty is made up of a reduced late-filing penalty (4.5% instead of the standard 5%) added to the 0.5% late-payment penalty. After the maximum 25% penalty is met, the late-filing portion of the penalty ends, but the late-payment portion will continue at 0.5% up to a maximum of 22.5%.

Other penalties may also be imposed in addition to the combined penalty.

Civil Fraud Penalties

If the IRS can establish by clear and convincing evidence that a taxpayer has fraudulently underreported income, it can impose a penalty equal to 75% of the entire amount underreported. After such determination, the burden of proof rests upon the taxpayer to establish that fraud did not constitute the entire underreported amount. Fraud is defined to be an intentional wrongdoing by the taxpayer with the specific intent to evade a tax known or believed to be owing.

Furthermore, if the IRS determines that a taxpayer fraudulently failed to file a tax return, a penalty equal to 15% of the net tax due for every month that a return is due and not filed, up to five months (for a maximum of 75%) can be imposed.

Interest on Tax Underpayments

In addition to the various penalties, interest on tax underpayments may also be imposed. For individual taxpayers, the interest rate is equal to the short-term Federal rate plus 3%. Interest is compounded daily in most cases, and begins to accrue from the due date of the return.

Due Date to Preserve Tax-Exempt Status: October 15, 2010

On July 26, 2010, the IRS instituted a one-time relief program under which that small nonprofit organizations at risk of losing their tax exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by October 15, 2010. The IRS also posted on its website the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance.

There are two types of relief available for small exempt organizations. First, filing an extension for the smallest organizations required to file Form 990-N. An organization simply needs to go the IRS website, supply the information items required by the Form 990-N, and electronically file it by October 15, 2010.

Second, IRS has a voluntary compliance program (“VCP”) for small organizations eligible to file Form 990-EZ (Short Form Return of Organization Exempt From Income Tax). Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by October 15, 2010 and pay a compliance fee. More details are available on the IRS website.

The relief announced today is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

Once an organization loses its exemption, it has to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Tax-Exempt Organizations Must File Form 990 by May 17, 2010

Under the Pension Protection Act of 2006, most tax-exempt organizations, with the exception of churches and church-related organizations, must file Form 990 with the IRS effective the beginning of year 2007. Any tax-exempt organization that fails to file the relevant version of the form for three consecutive years automatically loses its federal tax-exempt status.

All Form 990-series returns are due on the 15th day of the fifth month after an organization’s fiscal year ends. Many organizations use the calendar year as their fiscal year, which makes May 15 the deadline for those tax-exempt organizations. This year, however, since May 15 falls on a Saturday, the deadline is actually on May 17, 2010. Absent a request for extension, there is no grace period from filing by the original due date.

Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N. Other tax-exempt organizations with annual receipts above $25,000 must file a Form 990 or 990-EZ, depending on their annual receipts. Private foundations must file Form 990-PF.