Published: February 9, 2010|Updated: June 5, 2024

By: Charles P. Corsello, EA|Reviewed by: Manuel W. Vetti, CPA

IRS Failure to File Penalty: Penalties for Not Filing a Tax Return

IRS failure to file penalty

The IRS has harsh penalties and consequences for taxpayers that don’t file their tax returns. Some people don't file their tax returns because they are confused about whether or not they need to file a return. Others end up not filing a tax return because they don’t have money to pay. That is the worst thing you can do. The IRS failure to file penalty is significantly higher than the tax penalty for not paying your tax bill. Also, you have more options once you obtain filing compliance. There are many IRS programs available that require federal filing compliance.

When the IRS Considers a Tax Return Filed

The IRS considers a tax return filed “on the date that is received at the place designated for filing by the Service.” It must first consider if the document filed constitutes a tax return. The IRS applies the “Beard Test.” Also, if identity theft took place and the IRS determines the tax return to be an ID Theft tax return, then the IRS can override the tax return received date in their system. Generally, one way to determine the return filed date is to look at your Account Transcript for code 150. It will have a return due date or return received date. This date that is later between the two is usually the tax return filed date. However, exceptions exist regarding the filing date or IRS system status.

Criteria the IRS Considers for Establishing the Filing Date

The IRS establishes the filing date (see IRM 25.6.1.6.14) after applying IRC rules. Those rules are as follows:

There “must be sufficient data to calculate the tax liability shown on the return (supporting schedules or forms)”
“The document must claim to be a return (name, address, TIN)”
“An honest and reasonable attempt is made to satisfy the requirements of the tax law.”
“Must be executed under penalties of perjury.”
See “Beard v. Commissioner 82 T.C. 766, 744 (1984), aff’d 793 F.2d 139 (6th Cir, 1986)”
The taxpayer has to sign the return under penalties of perjury. Otherwise, the timeclock for the Statute of Limitations on Assessment (ASED) and the Statute of Limitations on Collections does not start.
There was no identity theft. Identity theft encompasses Employment-Related Identity (ID) Theft (someone using your SSN for employment for example) or Tax-Related Identity (ID) Theft. Tax-Related Identity Theft is “when the bad taxpayer files a tax return under someone else’s identity reporting false income from an unverifiable source in order to get a refund.”

When the IRS Charges the Failure-to-File Penalty

The IRS assesses the failure-to-file penalty (FTF) on the very first day your tax return is considered late. The “Timely Filed Date” or the Filing Deadline is the date the taxpayer can file a tax return and have the IRS consider it filed timely. The Timely Filed Date is different from the due date. The IRS can change the day as to when they deem the tax return timely filed. However, technically the IRS cannot extend the due date. For instance, for most years, federal income tax returns are due on April 15th. If you don’t file, the IRS assesses the penalty on April 16th. However, there are times when that day follows on a weekend or holiday, and the IRS will provide taxpayers the next business day to file the tax return.

Extension Requests for Late Tax Returns

You can request a six-month extension. With an extension, you avoid the IRS failure-to-file penalty as long as you file by the extension deadline (generally October 15th). Note that you still face a failure-to-pay penalty (FTP) if you don’t pay 90% of your taxes owed by the April 15th deadline (or 100% of what you paid last year). Again, the FTP penalty is a mere fraction of the failure-to-file tax penalty.

The failure-to-file penalty only applies if you owe taxes. If you don’t owe income tax, there can be other downsides, but at least you avoid this particular penalty.

Standard Failure to File Penalty

The failure-to-file penalty is 5% of your tax liability. For example, if you owe $5,000, then it is $250. That gets assessed the first day you are late and every month after that until you file your return. The maximum penalty can be up to 25% of your balance. The IRS stops charging this once you have reached the 25% maximum FTF penalty on your balance.

Examples of the Failure-to-File Penalty

If the failure to file penalty and the failure to pay penalty both apply in the same month, then the combined penalty is 5% (4.5% failure to file and .5% failure to pay).

If you file at least 60 days late, the IRS charges a minimum failure-to-pay penalty. That is the lesser of $450 or 100% of the tax due.

Note: Whenever the IRS assesses the FTF and the FTP in the same month, the total combined penalty the IRS allows is 5%. In other words, the FTF penalty is reduced by the FTP.

Failure-to-File Penalty When Negligence or Fraud is Involved

If you didn’t file your tax return in an attempt to commit tax fraud, or you filed a false tax return, the penalties can be significantly higher. In these situations, the IRS triples the punishment. That makes the monthly penalty 15% and the maximum penalty 75% of the total taxes owed. Moreover, taxpayers can face jail time.

Taxpayers who believe that filing is voluntary and illustrate tax protestor contentions may face a Frivolous Tax Return Penalty. The taxpayer faces a penalty of $5,000 ($10,000 if married filing jointly).

Failure-to-File Penalty for a Tax-Exempt Organization

Tax-exempt organizations that have a filing requirement for information returns but have not filed will usually incur $20 in penalties for each day late. The maximum penalty is the smaller of:

$10,000 or
5% of the organization’s gross receipts for the year

If the tax-exempt organization has gross receipts greater than $1 million for the year, the late filing penalty is $100 a day up to a maximum of $50,000. Moreover, if a tax-exempt organization fails to file a tax return three years in a row, it leads to automatic revocation of its exempt status.

Failure-to-File Penalty for Partnerships & S Corporations

S corporations and partnerships must file their annual tax return on the fifteenth day of the third month following the end of their tax year. If a partnership or S corporation fails to file a tax return, the penalty is $195 per month, per partner, for up to 12 months. For example, if a partnership files three months late with four partners, the total late-filing penalty the IRS assesses would be (3 months x 4 partners x $195) or $2,340. Additional penalties may apply if the partnership fails to furnish Schedule K-1s to its partners.

Failure-to-File Penalty for Corporations

The FTF penalty for a corporation is the same as the standard FTF penalty for individuals with regards to filing an 1120 or 1120-A. In other words, the IRS assesses an FTF penalty of 5% for any unpaid tax for each month the tax return is late, up to a maximum of 25%.

With regards to failing to file 941 forms or the “Employer’s Quarterly Tax Form,” the IRS assesses a failure to file penalty of 5% per month on any unpaid tax balance, up to a maximum of 25%. The same rule applies to Form 940, the Employer’s Annual Federal Unemployment Tax Return (FUTA).

Removing the Failure-to-File Penalty

Luckily, the IRS removes about a third of penalties. If you haven’t filed late before, you can qualify for the first time abatement (FTA) program. In other cases, you can receive penalty abatement if you prove there was a reasonable cause that prevented you from filing on time. It is also important to file any unfiled tax returns to stop the penalties from accruing. Even if you can't pay, the failure to pay penalty is significantly less than the failure to file penalty.

The IRS has accepted many excuses, and it handles each situation on a case-by-case basis. While there is no specific criteria about what is and isn't accepted, here are a few different common situations and their likelihood of relief.

Late Tax Penalty Abatement Examples

You mailed your return, but the post office returned it because the postage was short.
Destruction of your records or place of business (includes fires, hurricanes, and so forth)
An IRS employee gave you the wrong information (rarely accepted)
Death or the grave illness of a family member (in the case of a corporation the person who was supposed to file or make the payment must have had sole authority)

If you have unfiled back taxes or penalties for failure to file, you may want to consult with a tax relief professional. They can help you get back into compliance with the IRS and apply for penalty abatement. You can also start below to find a professional that can help you with your unique situation and has the experience needed to resolve your problem. Start by selecting the tax agency or agencies you have problems with and you can filter further by tax problems (IE, unfiled returns, tax penalties, etc) and see the pros that are the highest-rated for those particular problems.

An Example of Failure-to-File for Different Organization Types

Let’s say that an individual taxpayer, an S corporation, and a tax exempt organization all had the same late payment issue on a $5,000 liability.

Individual Taxpayer

Failure-to-File Penalty: 5% of the unpaid tax per month, up to a maximum of 25%. For $5,000, it is $250 per month.
- Example: If the individual is 3 months late, the penalty would be 3 * $250 = $750.
Failure-to-Pay Penalty: 0.5% of the unpaid tax per month, up to 25%.
- Example: For 3 months, it would be 3 * $25 = $75.
Combined Penalty: If both penalties apply in the same month, the combined penalty is reduced to 5%.
- Total Penalty for 3 Months: $750 (FTF) + $75 (FTP) = $825.

Partnership

Failure-to-File Penalty: $210 per partner per month, up to 12 months.
- Example: For a partnership with 4 partners, 3 months late, the penalty would be 3 * 4 * $210 = $2,520.
Failure-to-Pay Penalty: Same as individuals, 0.5% per month of the unpaid tax.
- Example: $75 for 3 months late.
Total Penalty for 3 Months: $2,520 (FTF) + $75 (FTP) = $2,595.

Corporation

Failure-to-File Penalty: 5% of the unpaid tax per month, up to 25%.
- Example: For $5,000, it is $250 per month.
- Total for 3 Months: $750.
Failure-to-Pay Penalty: Same as individuals, 0.5% per month of the unpaid tax.
- Example: $75 for 3 months late.
Total Penalty for 3 Months: $750 (FTF) + $75 (FTP) = $825.

Tax-Exempt Organization

Failure-to-File Penalty:
- Gross Receipts ≤ $1 million: $20 per day, up to lesser of $10,000 or 5% of gross receipts.
  - Example: For 3 months (90 days), the penalty would be 90 * $20 = $1,800.
- Gross Receipts > $1 million: $100 per day, up to a maximum of $50,000.
  - Example: For 3 months, the penalty would be 90 * $100 = $9,000.
Failure-to-Pay Penalty: 0.5% per month of the unpaid tax.
- Example: $75 for 3 months late.
Total Penalty for 3 Months (assuming gross receipts ≤ $1 million): $1,800 (FTF) + $75 (FTP) = $1,875.

IRS Failure-to-File Resources

Failure to File Penalty: An overview of the failure-to-file penalty, including the rates and conditions for it to be applied.
- Failure to File Penalty | IRS
Penalties: Discusses penalties imposed by the IRS, including failure-to-file and failure-to-pay penalties, and offers some general guidance on how to manage them.
- Penalties | IRS
Failure to Pay Penalty: Goes further into detail about the failure-to-pay penalty, its rates, and how it interacts with the failure-to-file penalty.
- Failure to Pay Penalty | IRS
Penalty Relief: Information on different types of penalty relief available, including First Time Abate and other potential waivers.
- Penalty Relief | IRS
IRS Notices and Bills, Penalties, and Interest Charges: Provides information on IRS notices, penalties, and interest charges, and what actions to take if you receive a notice.
- IRS Notices and Bills | IRS
First Time Abate or Other Administrative Waiver: Explains how to qualify for penalty relief through the First Time Abate program or other administrative waivers.
- First Time Abate | IRS
What to Do If You Haven't Filed Your Tax Return: Offers guidance on the steps to take if you have not filed your tax return, including potential penalties and relief options.
- What to Do If You Haven't Filed Your Tax Return | IRS
IRS Provides Penalty Relief for 2020 and 2021 Tax Returns: Discusses specific penalty relief measures provided for certain tax years due to the COVID-19 pandemic.
- Penalty Relief for 2020 and 2021 | IRS

Key Takeaways

IRS Penalties for Not Filing: The IRS imposes harsh penalties on taxpayers who fail to file tax returns, doling out penalties for not paying taxes. The more compliant you are, tax-wise, the more resolution options you’ll have.
When a Tax Return is Considered Filed: The IRS considers a tax return filed on the date it is received at the filing place, applying the "Beard Test" to ensure it constitutes a valid return, which simply means it must fit 4 criteria outlined by the test. Identity theft-related issues can affect the filing date.
Beard Test Criteria for Establishing Filing Date: IRS criteria for the filing date of a tax return include having sufficient data on the page to calculate tax liability, the return being clearly marked as a tax return, the return being executed under penalties of perjury, and that it is an “honest and reasonable attempt” to satisfy the requirements of the tax laws.
Failure-to-File Penalty: This penalty is assessed as soon as a tax return is late, typically 5% of the tax liability per month, up to 25%. Extensions can prevent this penalty from being enacted but not the failure-to-pay penalty.
Penalties for Different Entities: Different penalties apply to tax-exempt organizations, partnerships, S corporations, and regular corporations, with varying limits and conditions as outlined above.
Removing the Penalty: Penalty abatement is possible through programs like the First Time Abatement (FTA) or by proving a reasonable cause. Filing any unfiled tax returns is crucial to stop penalties from accruing. If you can explain why taxes weren’t filed, and what you’re doing to get taxes filed, you’re more likely to be given minor penalties rather than major ones.
Additional Penalties by Organization: Higher penalties apply in cases of negligence, fraud, or frivolous tax returns, and tax-exempt organizations face penalties for not filing required information returns. Honesty is the key factor here.
Compliance: No matter which waivers you choose to pursue, or which extensions you may get, the best rule of thumb is to be as compliant and forthcoming with information as possible to the IRS.