New Minimum Late File Penalty

• The Trade Facilitation and Trade Enforcement Act of 2015, referred to as the "Customs Bill", was signed into law on Feb 24th, 2016.   The Bill originally grabbed tax headlines news for it's ban on local taxation of InterNet access.  
• This law included late-filing penalties. 
• For tax returns filed after Dec 31, 2015, the minimum late-file penalty is the smaller of $205 or 100% of the unpaid tax. 
• The previous minimum late-file penalty was the smaller of $135 or 100% of the unpaid tax. 
• The late-file penalty is assessed on tax returns filed 60 days after the filing deadline, usually April 15th.

IRS Penalties

• Normally, the IRS treats each late filer individually and calculates penalties and interest on a case-by-case basis.
• Once the IRS receives or accepts your return, the penalties are computed (plus interest) and a separate bill is sent to the taxpayer.
• There is no penalty if you're getting a tax refund, provided you file within 3 years of the April 15 deadline (or October 15 deadline if you filed an extension).
• After 3 years, unclaimed tax refunds are forfeited and become the property of the US Treasury.
• There is no late-file penalty if you filed an extension and paid any additional taxes owed by April 15, as long as you file your return by the October 15 deadline.
• A late-file penalty applies if you owe taxes and didn't file your return or extension by April 15.
• This penalty applies if you owe taxes, filed an extension, but didn't file your return by October 15.
• The late-file penalty is 5% of the additional taxes owed amount for every month (or fraction thereof) your return is late, up to a maximum of 25%.
• If you file more than 60 days after the due date, the minimum penalty is $205 or 100% of your unpaid tax, whichever is smaller.
• The late-file penalty is 10 times higher than the late-pay penalty. Even if you can't pay your tax bill, file your return on time, or at least file a 6-month extension. You can file an amendment later.
• A late-pay penalty applies if you didn't pay any balance due owed by April 15, whether you filed an extension or not.
• The late-pay penalty is 0.5% (1/2 of 1%) of any balance due amount for every month (or fraction thereof) the owed tax remains unpaid, up to 25% maximum.
• For any month(s) in which both the late-pay and late-file penalties apply, the 0.5% late-pay penalty is waived.

Case Study:  Let's say you haven't filed your return or an extension by April 15, and you still have a $10,000 balance due the IRS.

• If you file your return on April 29 (2 weeks late) and submit your payment for $10,000, you would likely owe an additional $500 for the late-file penalty ($10,000 x 5% = $500).
• Had an extension been filed by April 15, your late-pay penalty would only be $50 ($10,000 x .05% = $50) and not a late-file penalty of $500. 
• Say instead, you filed your return and submit your payment for $10,000, 5-years late, (past the original due date).  You would owe an additional $5,000 for filing late and paying late ($10,000 X 25%), (5% per month up to 25% for filing late) plus ($10,000 X 25%), (0.5% per month up to 25% for paying late)*, plus possible interest.

* The late-pay penalty is 0.5% of the unpaid taxes, assessed on a monthly basis, up to a maximum of 25%.

Courtesy: IRS Tax Topic 653