Penalties

Late filing and late payment. Section 6651 provides for penalties for both late filing and late payment unless there is reasonable cause for the delay. The law also provides for penalties for willful attempts to evade payment of tax. The late filing penalty will not be imposed if the taxpayer can show that the failure to file a timely return is due to reasonable cause.

Reasonable-cause determinations. If you receive a notice about penalties after you file Form 706, send an explanation and we will determine if you meet reasonable-cause criteria. Do not attach an explanation when you file Form 706. Explanations attached to the return at the time of filing will not be considered.

Understatement. Section 6662 provides a 20% penalty for underpayments of estate or GST taxes due to negligence, intentional disregard of rules and regulations, or a substantial valuation understatement. A substantial valuation understatement occurs when the reported value of property is 65% or less of the actual value of the property. A gross valuation understatement occurs when the reported value of the property listed is 40% or less of the actual value of the property. In cases involving a gross valuation understatement, the penalty increases to 40% of the underpayment. No penalty will be assessed if the underpayment of estate tax, attributable to substantial or gross valuation understatement, does not exceed $5,000.

Return preparer. Estate tax return preparers who prepare any return or claim for refund which reflects an understatement of tax liability due to an unreasonable position are subject to a penalty equal to the greater of $1,000 or 50% of the income earned (or to be earned) for the preparation of each such return.

Estate tax return preparers who prepare a return or claim for refund which reflects an understatement of tax liability due to willful or reckless conduct are subject to a penalty of $5,000 or 75% of the income earned (or income to be earned), whichever is greater, for the preparation of each such return.

Estate tax return preparers who prepare any return or claim for a refund are required to furnish a copy to the taxpayer, sign the return, and provide their PTIN but who fail to do so are subject to a penalty of $50 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect.

See sections 6694 and 6695, the related regulations, and Announcement 2009-15, 2009-11 I.R.B. 687, available at Announcement 2009-15, for more information.