Hello and thank you for using Just Answer.Penalties and interest are calculated from the due date of the return. The Balance due would have been paid in 2011 when the refunde was applied but interest and penalties started in 2010 April 15th, when the 2009 return was due.Failure to File, IRC 6651(a)(1)
Failure to Pay Penalty, IRC 6651(a)(2) and IRC 6651(a)(3)
Thanks for the information. Are you able to answer the full question?
The late payment of the tax would apply since the return was not filed on time. Having the payment due covered by the application of the refund would ensure that no penalty would be added. You would have to look to the IRS codes I advise don to see that the penalty would not apply. Penalty and interest could only be calculated on a the balance due and since there would be no balance due there would be no penalty to calculate.
I understand about the penalty. When $2000 were constructively paid - in 2008, 2009, or in 2011? Is that possible that $2000 were constructively paid before they were constructively received?
Yes, because the return that was filed had the amount applied. The amount paid was when the return was filed. So if the 2009 return was filed on time there would be no penalty or interest. If the 2009 return was filed late, the dtae of actual filing is the payment date.
Thanks for the reply. I am still interested in information that has nothing to do with the penalty... A client overpaid 2008 federal income tax by $2000, and applied the full overpayment to 2009 tax year. After the overpayment from 2008 was applied - there is no tax due for 2009. Tax returns for 2008 and 2009 were prepared in 2011.
1. Was the $2000 refund constructively received in 2011, when the tax return was filed?
2. When were the $2000 constructively paid - in 2008, 2009, or in 2011? Is that possible that $2000 were constructively paid before they were constructively received?
Thanks again for your help... :-)
The answer the balance due for 2009 was paid when the 2008 return was received/filed. So the 2009 return is dependent on the 2008 filing date as the refund was applied to the 2009 from the 2008.
In summary, would you agree that Q1=2011 and Q2=2011? (You can disregard Q3 and Q4).
Sorry - Rewording the original question to read: "A client overpaid 2008 STATE income tax by $2000, and applied the full overpayment to 2009 tax year. Tax returns for 2008 and 2009 were prepared in 2011."
With that, would you agree that Q1=2011 and Q2=2011?