Interest and Penalties

Interest. Interest is charged on taxes not paid by the due date, even if an extension of time to file is granted. Interest is also charged on penalties imposed for failure to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction understatements from the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section 6621.

Late filing penalty. A penalty may be charged if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause and not due to willful neglect.

If you receive a notice about a penalty after you file this return, reply to the notice with an explanation of why the return was late. We will determine if you meet the reasonable-cause criteria. Don’t attach an explanation when you file your return.

If taxes are due, we will charge a section 6651 penalty of 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax; or, if the return is 60 days or more late, $525 or the balance of the tax due on the return, whichever is smaller. If no tax is due, we may charge a section 6698 penalty of $255 for each person who was a residual interest holder in the REMIC at any time during the year for each month or part of a month the return is late, for up to 12 months. Although we can charge both the section 6651 and section 6698 penalties when taxes are due, we will generally charge only one of the penalties, whichever is greater.

Late payment penalty. The penalty for not paying the tax when due is usually ¹ /2 of 1% of the unpaid tax for each month or part of a month the tax is unpaid. The penalty can’t exceed 25% of the unpaid tax. The penalty won’t be charged if you can show reasonable cause for not paying on time.

Other penalties. Penalties can also be imposed for negligence, substantial understatements of tax, reportable transaction understatements, and fraud. See sections 6662, 6662A, and 6663.