IRS late payment penalty & interest

[Bruno]

What is the name of your state? CA

I did file an extension before April 17 for 2006. However, at that time, I believed I was going to receive a refund. However, I just realized I made a mistake, and now I owe IRS taxes. I am going to file ASAP, but I need to add penalty and interest. My questions is this: Is my case "late payment" or "late filing"? In other words, is filing a valid extension (Form 4868) considered filing on time, or an actual return (1040) has to be filed before April 17? Penalty rates on "late filing" is 4.5% per month, whereas penalty for "late payment" is 0.5% per month. Also, is the date when the penalty and interest stop accruing the date I file (mailing date) or when IRS actually receives and processes my return. Current interest is 8% (compounded daily). Thanks for your advice!

 

[panzertanker]

Thanks for your advice!

Advice:

An extension is a valid way to "extend" your time frame to FILE your taxes.

 

[Bruno]

Date when the penalty and interest stop accruing

Thanks for your prompt reply...how about the second part of my question?:

Also, is the date when the penalty and interest stop accruing the date I file (mailing date) or when IRS actually receives and processes my return? Thanks for your advice!

 

[FlyingRon]

Thanks for your prompt reply...how about the second part of my question?:

Also, is the date when the penalty and interest stop accruing the date I file (mailing date) or when IRS actually receives and processes my return? Thanks for your advice!

It's late payment and it runs until you MAIL the valid payment. Nearly every deadline with the IRS is the postmark date.

 

[abezon]

It's late payment, & you can either add .5% yourself, or just send in the taxes & the IRS will send you a politely worded invoice for the penalty and the interest. Or maybe not.

Depending on the source of the error, you could pay the penalty & interest, then ask the IRS to waive the penalty -- they might return the $$ to you.

 

[Bruno]

Some follow-up regarding postmark

Thanks for great advice! So my best bet would be just send them the return without tacking on my assessed interest and penalty, and let them send me a bill later, and hope for them not to overlook the fact that I have filed a valid extension?

I also received some advice regarding the issue of postmark from another source as follows:

The postmark rule is contained in IRC Sec 7502.
Note 7502(a)(2) says that the postmark rule applies only if "the postmark date falls within the prescribed period or on or before the prescribed date..." Your payment will be mailed after the prescribed date (April 17), hence the postmark rule does not apply.

This is even more clearly described in Treas Reg Sec 301.7502-1(a),
which says "Section 7502 does not apply in determining whether a failure to file a return or pay a tax has continued for an additional month or fraction thereof for purposes of computing the penalties and additions to tax imposed by section 6651."

It doesn't matter when the IRS processes your payment. The day that counts is when they receive the payment (assuming the payment is good).

 

[tecate]

Attach a copy of the extension to your return.