Have a Tax Question? Ask a Tax Expert
Q: Am I going to be ok? What kind of trouble am I looking at?
A: Sorry, but yes, you're in a bit of a jam. Regarding the employment taxes, you are looking at failure to file and failure to penalties. Regarding the late filing of the W2, you're looking at a $50 penalty. SEE BELOW:
220.127.116.11 (05-14-2008)Assertion of Failure to File Penalty
IRC 6651(a)(1) imposes a penalty for the failure to file a tax return by its required due date (determined with regard to any extension of time for filing). The penalty rate is 5% per month up to a maximum of 25%, computed on the amount of unpaid tax. The penalty is assessed unless the taxpayer can show that the failure to file was due to "reasonable cause" and not due to willful neglect. See IRM 18.104.22.168, Failure to File a Tax Return IRC section 6651(a)(1).
For reduction of the delinquency penalty rate when it is combined with the failure to pay penalty, see IRM 22.214.171.124.
IRC 6651(f) provides that if the failure to file is fraudulent, the penalty increases to 15% per month up to a maximum of 75%.
Generally, there is no provision for an extension of time to file an employment tax return under IRC 6081. However, deadline extensions may be granted for a Form 940 under Treas. Reg. 31.6081(a)-1(b) and for all employment tax returns under combat zone (IRC 7508) and disaster relief (IRC 7508A) provisions.
126.96.36.199 (05-14-2008)Assertion of Failure to Pay Penalty
Let me know if I can be of further assistance to you regarding this matter.
IRC 6651(a)(2) provides a penalty for failure to pay tax shown on returns, unless the failure to pay is due to reasonable cause and not due to willful neglect. IRC 6651(a)(3) provides a similar penalty for failure to pay tax not shown on the return within 21 days from the date of notice and demand for the tax (10 business days if the amount equals or exceeds $100,000). See IRM 188.8.131.52, Failure to Pay Tax IRC section 6651(a)(2), and IRM 184.108.40.206, Failure to Pay Tax IRC section 6651(a)(3), for more information.
When a delinquent return is received from a taxpayer during an examination, the examiner will determine whether the failure to pay penalty under IRC 6651(a)(2) should be asserted. The examiner’s recommendation for the assertion or non-assertion of the penalty will accompany each delinquent return sent to the Campus. If the delinquent return is received from the taxpayer with remittance, the examiner will solicit payment of the penalty when applicable.
The operating division which conducted the examination is solely responsible for determining whether the failure to pay penalty is applicable on delinquent returns secured. This procedure also applies when a "Substitute for Return" is prepared in a case where a delinquent return was due from the taxpayer.
The penalty imposed by IRC 6651(a)(2) is one-half of 1% for each month or fraction thereof during which the failure to pay continues, limited to a maximum of 25% of the tax shown on the return (or required to be shown and which is not shown after notice and demand) reduced by:
Any part of the tax which is paid on or before the beginning of such month and
Any credit against the tax which may be claimed on the return.
In cases subject to the failure to file and failure to pay penalties special provisions apply. No taxpayer will be subject to more than a 5% penalty (both penalties combined) in any one month, limited to a maximum 25%. In these cases the delinquency penalty will be computed at 41/2% per month and the failure to pay penalty at one-half of 1% per month.
See IRC 6651(d) for certain situations in which the failure to pay penalty is increased to 1%.
A failure to pay will generally be considered to be due to reasonable cause to the extent that the taxpayer has made a satisfactory showing that he exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship if he paid on the due date. Treas. Reg.(###) ###-####1(c). See also Policy Statement 2–7, Reasonable cause for late filing of return or failure to deposit or pay tax when due, and IRM 20.1.1, Introduction and Penalty Relief, in the Penalty Handbook.