When you fail to timely file a required tax return, make timely tax payment, or pay by electronic fund transfer when you are required to do so, TTB may assess certain financial penalties. If you underpay your tax due to negligence or fraud, you may be subject to additional penalties. In certain cases, you may be subject to criminal prosecution.
The following is an overview of the most common types of penalties imposed. This information is given to you to help reduce the likelihood of your incurring such liabilities.
Failure to File Penalty
If you fail to timely file your tax return, TTB will assess a penalty equal to 5% of the tax not paid by the due date for each month or part of a month that the return is late. This penalty cannot be more than 25% of the tax. For more information about the failure to file penalty, see 26 U.S.C. 6651(a)(1).
Even if you pay your taxes by electronic fund transfer (see TTB and Pay.gov Customer Support for more information), you are responsible for the timely filing of your tax return.
Failure to Pay Penalty
If you do not timely pay your taxes, TTB will assess a penalty of 1/2 of 1% of your unpaid taxes for each month or part of a month after the due date that the tax is not paid. This penalty cannot be more than 25% of your unpaid tax. If a penalty for failure to file and a penalty for failure to pay both apply for the same month, the amount of the penalty for failure to file for that month is reduced by the amount of the penalty for failure to pay tax shown on a return. For more information about the failure to pay penalty, see 26 U.S.C. 6651(a)(2).
Failure to Deposit Penalty
Regulations require certain taxes be paid using electronic fund transfer. TTB will assess the failure to deposit penalty when a taxpayer is required to use electronic fund transfer, but does not timely do so. Required electronic fund transfers are timely if made on or before the due date for electronic fund transfers. The penalty rate ranges from 2% to 15% of the underpayment depending on the number of days the electronic fund transfer is late. For more information about the failure to deposit penalty, see 26 U.S.C. 6656.
Interest
Interest, compounded daily, is charged on any unpaid tax or penalty as prescribed by law. For more information on determining the rate of interest, as well as a table of interest rates, please see the most recent release about interest rates from the Internal Revenue Service at the Index of Applicable Federal Rates (AFR) Rulings.