Tax Topic 151 refers to the Internal Revenue Service (IRS) guidance regarding the "Failure to File Penalty." This topic provides detailed information about the penalties that taxpayers might incur when they fail to file their tax returns on time.
Here are the key points associated with Tax Topic 151:
Definition: The Failure to File Penalty is a financial penalty imposed on taxpayers who do not file their federal income tax returns by the due date, including any extensions.
Penalty Amount: The penalty is generally calculated as a percentage of the taxes owed. Specifically, the IRS charges a penalty of 5% of the unpaid taxes for each month (or part of a month) that the return is late, up to a maximum of 25%. If the return is more than 60 days late, the minimum penalty can be the lesser of $435 (for returns due in 2020 and later) or 100% of the tax due.
Extensions and Exemptions: If a taxpayer files for an extension, they are still required to pay their estimated taxes by the original due date to avoid penalties. The extension only provides additional time to file, not additional time to pay. Additionally, if a taxpayer can show that the failure to file was due to reasonable cause and not willful neglect, they may be eligible for relief from the penalty.
Consequences: Aside from monetary penalties, failing to file a tax return can lead to additional negative consequences, including the IRS automatically assessing a tax return based on available data, which could lead to a higher tax liability than what the taxpayer may owe.
- Appeals and Relief: Taxpayers who believe they have reasonable cause for failing to file on time can request abatement of the penalty. The IRS considers circumstances such as severe illness, natural disasters, or other significant hardships when determining reasonable cause.
To avoid Tax Topic 151 penalties, it is crucial for taxpayers to file their returns on time and pay any due taxes. If financial constraints or other circumstances make timely filing difficult, applying for an extension and communicating with the IRS is advisable.