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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Joseph Cole, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Lauren Suarez, ESQ., LL.M.
    • Daniel Huynh, Esq., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Leslie Miranda, Esq., LL.M.
    • Brian M. Malloy, Esq.
    • Steve S. Mattia, Esq.
    • Sam Imandoust, ESQ., LL.M
    • Kaveh Imandoust, JD, MBT, CPA
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Martin Schainbaum, ESQ., LL.M.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Melanie M. Shamoun
    • Sandie Portilla
    • Renae Arabo
    • Sabri P. Shamoun
    • Hilary Dargavell
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Remy Hogan
    • Judith Jeremie
    • Marley Smith-Peters
    • Melanie Chan
    • Tanner DeMera
    • Charles Ecker
    • Anna Gurr
    • Asia Smith
  • Practices
    • ERTC – Call Us Before It’s Too Late!
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
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          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
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          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
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          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
          • Why Choose RJS LAW?
          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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          • EDD Investigations
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        • CDTFA – California Sales Tax
          • California Sales Tax Appeals
          • California Sales Tax Audits
          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
      • CRIMINAL TAX ISSUES
        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
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      • Innocent Spouse Relief
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    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
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      • Landlord Tenant Law
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  • Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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    • RJS Law Donates Billboard to the Girl Scouts
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How the IRS calculates interest

How the IRS calculates interest

How the IRS calculates interest

Filing a tax return on time and paying any taxes due allows you to avoid having to worry about paying any additional penalties and interest the IRS may charge.  However, every year there are taxpayers who find that they are unable to pay their tax obligations on time.  These taxpayers face paying not only significant penalties, but they also owe interest on the taxes that have not been paid.  So, just how much will a taxpayer owe? And how the IRS calculates interest?

The amount of total interest owed is based on if a taxpayer has filed their tax return. Individuals who have not filed their tax return and have a tax balance past the due date are charged a failure-to-pay (FTP) penalty in the amount of 0.5% per month. This penalty amount is compounded on a daily basis, meaning interest is charged daily based on the previous day’s new principal and interest. If the tax return remains unfiled, the interest rate can be increased to 1% per month within ten days of the IRS issuing an Intent to Levy.  If a taxpayer files their tax return on time, and agrees to enter into an installment agreement, the interest is lowered to .25% per month.  The total maximum amount of interest that can be charged is 25% of the unpaid tax at the due date of the tax return.

If a taxpayer has not filed their tax return and owes taxes, they are also subject to a failure-to-file (FTF) penalty.  This is 5% of the unpaid tax per month, or part of a month that a tax return is not filed, up to a total of five months. If the tax return is more than 60 days past due, the minimum penalty is the lessor of $135, or 100 percent of the tax owed.

In addition to paying interest, an underpayment interest charge of the federal short-term interest rate plus 3% is charged on the balance, which is compounded on a daily basis.  Corporations owe the same FTP penalty amount and underpayment interest charge; however, if they owe more than $100,000 dollars, they face an underpayment interest charge of the federal short-term interest rate plus 5%.  The current federal short-term interest rate rounded to the nearest whole rate is 0%, determined on quarterly basis.

If a taxpayer finds they are unable to pay their tax balance by the due date, it is important that they contact the IRS to discuss the options they have in order to reduce the amount of additional penalties or interest they may end up owing. Another option is to seek the assistance of a tax professional, such as a tax attorney, in order to discuss other options.  A tax attorney can be authorized to represent a taxpayer, and may contact the IRS on the taxpayer’s behalf in order to negotiate any past due filing or late tax payment issues.  In addition, they can often provide tax planning services in order to help avoid a situation where a taxpayer is unable to either file their tax return and/or pay any taxes owed on time.

______________________________________________________________________

Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.

Filed Under: IRS Collections, IRS Issues, Tax Tips Tagged With: interest calculation, irs interest, irs interest calculation, irs penalties

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