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Author: chkNYC Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121263  
Subject: Just wondering Date: 4/20/2004 2:02 PM
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Many years back, I misplaced the envelopes with my tax returns in them and didn't discover them until sometime in May. I mailed them. IIRC, my returns showed that I had to pay the Fed a couple of hundred dollars and I got a refund from the state in about the same amount.

The refund eventually came, the Treasury cashed my check. Never heard a word about the late filings.

Does anyone have any experience with getting penalized for a "late return"? Interest charges, fees, penalties, what? (Let's just assume that the return is less than one month late - not several years, OK?)

I'd be interested in hearing.

TIA.

Christina
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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71538 of 121263
Subject: Re: Just wondering Date: 4/20/2004 3:42 PM
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I would BET (but not with real money), that if it was just a couple of days late, it might get through. I've seen it happen. That's because it would arrive in a truckload of mail that WAS timely mailed-therefore timely filed. I don't know how closely they scan the postmarks.

But if it's about a month or so, I would expect to get nailed for a month's late filing penalty - 5%.

Bill


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Author: edgynewparts Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71547 of 121263
Subject: Re: Just wondering Date: 4/20/2004 9:06 PM
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I would expect to get nailed for a month's late filing penalty - 5%.


Just out of curiousity, 5% of what? Total tax? Total tax still owed (i.e., the check sent with the return)?

Edgy,
who has never filed late and doesn't know exactly where to find the answer on his own

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Author: ccschafer150 Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71548 of 121263
Subject: Re: Just wondering Date: 4/20/2004 9:44 PM
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[[Just out of curiousity, 5% of what? Total tax? Total tax still owed (i.e., the check sent with the return)?]]

5% of the tax still owed.

Choc

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Author: chkNYC Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71551 of 121263
Subject: Re: Just wondering Date: 4/21/2004 8:29 AM
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5% of the tax still owed.

And what if the return shows that you are entitled to a refund?

Also.....I'm still wondering if anyone has actually had experience with filing a late return and being penalized?

TIA.

Christina

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71552 of 121263
Subject: Re: Just wondering Date: 4/21/2004 8:44 AM
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5% of the tax still owed.

And what if the return shows that you are entitled to a refund?


While I believe the IRS can still assess a late filing penalty, I have never seen it applied.

Also.....I'm still wondering if anyone has actually had experience with filing a late return and being penalized?

Many times. I agree with the earlier poster that if the filing is late by a day or two, it often slips through with the millions (yes, millions) of returns that arrive within the week after April 15. File significantly late and you can expect to get a penalty notice.

Ira



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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71553 of 121263
Subject: Re: Just wondering Date: 4/21/2004 9:21 AM
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And what if the return shows that you are entitled to a refund?

While I believe the IRS can still assess a late filing penalty, I have never seen it applied.

Ira, how would the IRS charge and/or collect a penalty, which is a percentage of the tax due, for filing late for a refund? (.<) ed

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Author: Jeanwa Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71555 of 121263
Subject: Re: Just wondering Date: 4/21/2004 9:48 AM
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>>>>>>>>And what if the return shows that you are entitled to a refund?

>>>While I believe the IRS can still assess a late filing penalty, I have never seen it applied.

5% of the tax still owed.

5% of minus $100 (assuming a $100 refund) is a negitive number, so no penality.

The penality comes from late filing with an amount due the IRS, and I have never seen a situation where it wasn't assessed.

__________________________


Anyone that has had a business and had to pay the fica and withholding and made their deposit one day late (or after 3:00 in the afternoon at some banks) KNOW how awful the penality can be!!!!!!!!!

Employer's have to pay the FICA and W/H thru a bank a check is not sent to the IRS.

Jean



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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71559 of 121263
Subject: Re: Just wondering Date: 4/21/2004 11:07 AM
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how would the IRS charge and/or collect a penalty, which is a percentage of the tax due, for filing late for a refund?

When all else fails, read the directions.

The late filing penalty in IRC sec 6651 is 5% of the amount due, per month, with a maximum of 25%. In the case of an income tax return, if it is not filed within 60 days of the due date, there is a minimum penalty of the lesser of $100 or the amount of tax required to be shown on the return, unless the failure is due to reasonable cause and not due to willful neglect.

So they can still assess a penalty, even when the return shows a refund.

I have only seen this portion of the penalty assessed a couple of times.

The ultimate late filing penalty is in the statute of limitations. A refund claim (read: a tax return claiming a refund) must be filed within 3 years of the original due date (or 2 years of the date the overpaid tax was paid). Refunds after that time are barred by the statute of limitations. And I have routinely seen this applied.

--Peter

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71560 of 121263
Subject: Re: Just wondering Date: 4/21/2004 12:45 PM
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Peter: you said amount of tax required to be shown on the return. I read on page 61 of 1040 instructions, "If your return is more than 60 days late, the mimnimum penalty will be $100 or the amount of any tax you owe, whichever is smaller." Where is the penalty if there is no tax owed?

The actual code sec 6651 (a) (1) says there shall be added to the amount required to be shown as tax on such return which is as you intreprt it, however, sec 6651(b) (1) says

For purposes of -
(1)
subsection (a)(1), the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed on the return,
.

So, I interpret this that there can be no penalty assessed for being late by any amount of time if no tax is due with the return, that is, a refund is due, whether the return indicates a Total Tax or not. ed


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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71574 of 121263
Subject: Re: Just wondering Date: 4/22/2004 11:27 AM
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however, sec 6651(b) (1) says

For purposes of -
(1)
subsection (a)(1), the amount of tax required to be shown on the return shall be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed on the return, .


So, I interpret this that there can be no penalty assessed for being late by any amount of time if no tax is due with the return, that is, a refund is due, whether the return indicates a Total Tax or not.


I'm interpreting this as dealing with balance due situations, not refunds. I think we agree that the penalty is 5% per month of any balance due.

For refunds, we need to go back to 6651(a). The unnumberd paragraph after subsection (a)(3) says:

In the case of a failure to file a return of tax imposed by chapter 1 within 60 days of the date prescribed for filing of such return (determined with regard to any extensions of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, the addition to tax under paragraph (1) shall not be less than the lesser of $100 or 100 percent of the amount required to be shown as tax on such return.

Chapter 1 is income taxes (as opposed to some excise taxes to which this section also applies). Subsection (b)(1) specifically says that the amount of tax required to be shown on the return is reduced by payments and credits. I don't believe that this can be applied to the paragraph I quoted above, since (b)(1) itself says that it is for purposes of (a)(1). Further, there are subsections (b)(2) and (b)(3) that apply to (a)(2) and (a)(3), respectively, that intervene between (a)(1) and this paragraph.

And the language in (b)(1) makes it clear to me that the "amount of tax required to be shown on the return" is the full amount of tax, not the net tax after considering prepayments.

Hope this helps clarify my position.

--Peter

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71575 of 121263
Subject: Re: Just wondering Date: 4/22/2004 3:03 PM
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Peter: ALlow me to "clarify" what's wrong with your position. There is no "Unnumbered paragraph" after 6651a (a)(3), or you have found the ONLY paragraph in the entire tax code that does not have a number. You are quoting the last sentence in (a)(3), that is also modified in (b)(3). (b)(1) modifies (a)(1), (b)(2) modifies (a)(2) and (b)(3) modifies (a)(3). The (b) paragraphs say to deduct any tax paid or credits from the tax on the return stated in the (a) paragraphs. You are saying that because YOUR copy of the code has 2 paragraphs in (a)(3), the second paragraph (which you quote), unnumbered for some reason, therefor has no (b) paragraph modifing it. You say, therefor, that the unnumbered paragraph refers to Chapter 1 for personal income tax returns, and paragraph (a)(1) is NOT referring to personal income tax returns in Chapter 61 Subchapter A. You should note that both Chapter 1 and Chapter 61 Subchapter A refer to and include Personal Income Tax Returns.

If we were to take your intrepretation of this there would be no reason for the (b) paragraphs and they would be contradicotry to your unnumbered paragraph. You have misread the code as well as the instructions on page 61 of 1040 booklet which 4 times mentions the "amount due" rather than the Total Tax. The editors of the 1040 instructions did NOT misread the code. ed

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71579 of 121263
Subject: Re: Just wondering Date: 4/22/2004 6:31 PM
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(Note - after writing a bunch of stuff to support my position, I turned up something that completely refutes it. Rather than delete all the work I did, I'll leave it as a testimony to lousy drafting of laws by congress. If you want to cut to the chase, scroll down and look for the line of dashes.)

There is no "Unnumbered paragraph" after 6651a (a)(3), or you have found the ONLY paragraph in the entire tax code that does not have a number. You are quoting the last sentence in (a)(3),

Upon further reflection, I believe what I'm reading is 6651(a). Let me quote parts of the whole, and see if I'm making sense. I've left out (with the elipses ... ) all of the brutal details to make it easier to follow what is being talked about. The periods and semi-colons at the end of each line are as in the original.

(a) ADDITION TO THE TAX

In case of failure--

(1) to file any return required ... ;

(2) to pay the amount shown on tax on any return ... ; or

(3) to pay any amount ... within 21 calendar days from the date of notice and demand therefor ... .

In the case of a failure to file a return of tax imposed by chapter 1
within 60 days ...


So the last part above is really the second sentence of sec. 6651(a). Subsections (1),(2), and (3) are parts of the first sentence. So it looks to me like there are two different failures they are talking about - the failures in the first sentence (and it's 3 sub-parts) and the failures in the second sentence. It looks to me like the failure in the second sentence of 6651(a) adds a minimum amount to certain failures in the first sentence of 6651(a), specifically those in (a)(1).

I think the code internally agrees with this. Continue down to 6651(c)(1) (bolding is mine):

(c) LIMITATIONS AND SPECIAL RULE

(1) ADDITIONS UNDER MORE THAN ONE PARAGRAPH

With respect to any return, the amount of the addition under paragraph (1) of subsection (a) shall be reduced by the amount of the addition under paragraph (2) of subsection (a) for any month (or fraction thereof) to which an addition to tax applies under both paragraphs (1) and (2). In any case described in the last sentence of subsection (a), the amount of the addition under paragraph (1) of subsection (a) shall not be reduced under the preceding sentence below the amount provided in such last sentence.


It seems that they specifically recoginze that the last sentence is not a part of subsection (3) but instead is a part of (a).

If we were to take your intrepretation of this there would be no reason for the (b) paragraphs and they would be contradicotry to your unnumbered paragraph.

No, I see them as specifically recognizing that the basic penalty is on the amount owed with the return rather than the total tax liability. The all say the amount of tax ... shall be reduced by the amount of any part of the tax which is paid .... So the "amount of tax" is the total tax liability before payments. This would mean that when we get to the second sentence of (a), the "amount of tax" is still the full tax liability.

You have misread the code as well as the instructions on page 61 of 1040 booklet which 4 times mentions the "amount due" rather than the Total Tax. The editors of the 1040 instructions did NOT misread the code.

I believe that this is the part of the instructions to which you are referring (bolding is again mine):

Late Filing.
If you do not file your return by the due date (including extensions), the penalty is usually 5% of the amount due for each month or part of a month your return is late, unless you have a reasonable explanation. If you do, attach it to your return. The penalty can be as much as 25% (more in some cases) of the tax due. If your return is more than 60 days late, the minimum penalty will be $100 or the amount of any tax you owe, whichever is smaller.


I find it interesting that they switch from "due" to "owe" when talking about the minimum penalty. If they are referring to the same amount in each case, why the change? I believe it is because they are not talking about the same amount, but a different amount.

-------------------------------------------------

And now, having spent some time composing this reply, I turn up a Tax Court case which is exactly on point. Christine Patronik-Holder v. Commissioner.

In short, Ed knew of the case - or at least the repurcussions of it - and I didn't.

The taxpayer filed their 1988 return sometime in 1992 - certainly more than 60 days late. They had a tax of $10,510 and withholding of $10,631. This is just what we are discussing.

The court went to the legislative history of the section to make their decision rather than relying entirely on the law as written. Here's the part of the history that the judge quoted:

SENATE AMENDMENT

A new minimum penalty for the extended failure to file an income tax return would be imposed. If an income tax return were not filed within 60 days of the date prescribed therefor (with extensions), the penalty for failure to file would be not less than $100 even if no tax were owed. This minimum penalty would not be imposed if the failure to file the return were due to reasonable cause. The penalty would apply to returns due after December 31, 1982.

CONFERENCE AGREEMENT

The conference agreement follows the Senate amendment with the modification that the minimum penalty could not be imposed UNLESS THERE WAS AN UNDERPAYMENT OF TAX, and could not exceed the lesser of the underpayment or $100. [Emphasis added.]


With that info, it is clear that congress intended the penalty to apply only when there is an underpayment. The judge agreed, and found for the taxpayer.

Thank you, Ed, for not letting me slip by with shoddy research. While I still think that the law is drafted poorly, it doesn't change the fact that the IRS acquiesed to this decision in 1993 - more than 10 years ago - and apparently hasn't applied the penalty the way I have tried to describe since then. While I am sure I recall seeing the penalty applied, it must have been from before 1993. There can be no other conclusion.

--Peter

PS - Here's how the judge referred to the part of 6651(a) after paragraph (3):
The flush language appearing at the end of sec. 6651(a), I.R.C., provides that if a return is late by 60 days or more, the minimum penalty is $100, or if less, "100 percent of the amount required to be shown as tax on such return."


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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71581 of 121263
Subject: Re: Just wondering Date: 4/22/2004 7:02 PM
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Peter: I didn't research it THAT far, but the judge actually ruled against the taxpayer. In your PS they have ignored (b)(1). The Conference Agreement is correct. I don't know what they did over 10 years ago.
I think the reason "owed" and "Tax Due" are different is that after 60 days or more there are Penalties and Interest added to the Tax Due to make up the amount owed. ed

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71587 of 121263
Subject: Re: Just wondering Date: 4/23/2004 1:53 AM
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First, for anyone contemplating not filing just because they calculate a tax but think their credits and payments have eliminated any actual tax owed, they should read the following case.

http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl20c8/2/doc

In a nutshell TP thought his business losses and 5 exemptions would offset his 1099s so didn't file for MANY year in the 80s. His lawyer filed (finally after being dunned by the IRS) for other years and the IRS let him alone for them, but somehow 1988 wasn't filed. All TP had to do was file his return after IRS dunned him and show he owed no tax, but he waited over two years so it was too late. Judge let the IRS constructed return stand, piled on the penalties etc.

Footnote: TP was a lawyer in jail for life in May or 1988 for drug trafficing and murder (good excuse for not filing, or even caring if he filed or not). So, who knows how much income he had and from where and why he could show a loss on his legal practice. But, he started out with not filing a no-tax-due return and wouldn't have had a penalty had he just filed it when the IRS asked for it.

But BACK TO OUR THREAD: Peter, you say your quoted unnumbered paraagraph is a continuation of 6651(a), but being a full sentence that is not gramatically correct. Also if it is THAT significant, why isn't if numbered (a)(4) like EVERY OTHER paragraph in the tax code, or at least re-intdented. Maybe your copy is. If so, try placing it immediately after the preceeding sentence as though it was the last sentence in (a)(3). Later in the code this "last sentendce of (a)(3) is referred to, and (b)(3) then takes care of any payments or credits on the tax.

Probably that sentence, and all the (b) paragraphs were added due to the Committee influence, and they aren't the best of English (what is in the COde?), but without a number, or (in my copy) even an indent break, (b)(3) solves our problem of modifying (a)(3), however, it is a duplication of (a and b)(1) in that regard anyway. Editors of 1040 page 61 think so.

It's an interesting discusion. Sorry I had to rush my last post to get to the Dallas Symphony Orchestra; Andrew Litton conducting and Stephen Hough on the piano for a recorded session of "Rock 2". Also Arensky, and Stravinsky [The Rite of Spring]. They will be puting all 5 of Rachmaninoff's piano concertos on one CD. off to bed ed

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Author: vargajj Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71873 of 121263
Subject: Re: Just wondering Date: 5/18/2004 12:36 AM
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To all:
I've been doing taxes now for 14 years. I tell ALL of my customers who are running late, that if they ARE SURE they will get a refund, then don't worry about penalties for filing late. the IRS is really only interested in collecting money, not paper. I practically have a 2nd job filing late for people who get refunds that lasts into late april or even later some times. NOT one person in 14 years who correectly filed for and got a refund has ever been assesed a penalty to my knowledge. I intend to continue to provide that advice for people who ARE SURE they will get a refund.

You can argue the tax code all you want that's my story and I'm sticking to it.

i will say, however, that there was one year when the CA Franchise TAX board did lavy such a penalty but stopped.

In my opinion, the IRS would be very happy if people due a refund NEVER filed, and it is my opinion that the IRS's policy is just that: The longer a refund is unfile for the more likely it will never be filed for.

Joe Varga

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Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 71874 of 121263
Subject: Re: Just wondering Date: 5/18/2004 1:36 AM
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I intend to continue to provide that advice for people who ARE SURE they will get a refund.



why not tell them to file for an extension?

It takes 30 seconds to fill out, right?
And then it's definitely not going to be a problem.

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