Time is running out and the tax returns for S Corporation are due soon.
The final deadline to file S Corp tax returns (Form 1120S) is September 15th, 2010 if an extension was requested.
S Corporation's no longer enjoy the luxury to file late and not pay the penalty. One of the recent changes by the IRS is charging penalty on late filing of the S Corporation tax returns.
For tax years beginning after 2009, the late filing penalty for an S corporation return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation's tax year
So for a S Corp with two or more stockholders this penalty could add up to an exhorbitant amount.
Relief from penalty is available only if the S Corp shows that the late filing was due to reasonable cause.
Showing posts with label Tax Penalties. Show all posts
Showing posts with label Tax Penalties. Show all posts
Monday, August 9, 2010
Late Filing Penalty for Partnership
Time is running out and the tax returns for partnership are due soon.
The final deadline to file partnership tax returns (Form 1065) is September 15th, 2010 if an extension was requested.
Partnership no longer enjoy the luxury to file late and not pay the penalty.
For tax years beginning in 2009, the late filing penalty for a partnership return is $89 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.
For tax years beginning after 2009, the late filing penalty for a partnership return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.
So for a partnership with two or more partnership this penalty could add up to an exhorbitant amount.
Relief from penalty is available only if the partnership shows that the late filing was due to reasonable cause.
The final deadline to file partnership tax returns (Form 1065) is September 15th, 2010 if an extension was requested.
Partnership no longer enjoy the luxury to file late and not pay the penalty.
For tax years beginning in 2009, the late filing penalty for a partnership return is $89 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.
For tax years beginning after 2009, the late filing penalty for a partnership return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.
So for a partnership with two or more partnership this penalty could add up to an exhorbitant amount.
Relief from penalty is available only if the partnership shows that the late filing was due to reasonable cause.
Friday, August 6, 2010
Early Distribution from Retirement Plan & Taxes
Considering the current economic conditions, most of us are turning to our retirement funds for financial needs. However, we need to be aware of the tax consequences that may follow with such distributions.
Since the contributions to these plans are made from our before tax dollars (I have excluded Roth contributions/plans from the discussion here), the distributions when taken out will be fully taxable. In addition,the law imposes a 10% additional tax on early distributions from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. Whereas you cannot get out of the resulting tax liability, you may be able to save the early withdrawal penalty.
There are certain exceptions to 10% early withdrawal penalty.
The following six exceptions apply to distributions from any qualified retirement plan:
1. Distributions made to your beneficiary or estate on or after your death.
2. Distributions made if you are are totally and permanently disabled.
3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income.
5. Distributions made due to an IRS levy of the plan.
6. Distributions to qualified reservists.
The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:
1. Distributions made to you after you separated from service with your employer (State or local government), if the separation occurred in or after the year you reached age 55 or distributions from qualified governmental defined benefit plans if you were a qualified public safety employee who separated from service on or after you reached age 50,
2. Distributions made to an alternate payee under a qualified domestic relations order(QDRO), and
3. Distributions of dividends from employee stock ownership plans.
Since the contributions to these plans are made from our before tax dollars (I have excluded Roth contributions/plans from the discussion here), the distributions when taken out will be fully taxable. In addition,the law imposes a 10% additional tax on early distributions from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. Whereas you cannot get out of the resulting tax liability, you may be able to save the early withdrawal penalty.
There are certain exceptions to 10% early withdrawal penalty.
The following six exceptions apply to distributions from any qualified retirement plan:
1. Distributions made to your beneficiary or estate on or after your death.
2. Distributions made if you are are totally and permanently disabled.
3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income.
5. Distributions made due to an IRS levy of the plan.
6. Distributions to qualified reservists.
The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:
1. Distributions made to you after you separated from service with your employer (State or local government), if the separation occurred in or after the year you reached age 55 or distributions from qualified governmental defined benefit plans if you were a qualified public safety employee who separated from service on or after you reached age 50,
2. Distributions made to an alternate payee under a qualified domestic relations order(QDRO), and
3. Distributions of dividends from employee stock ownership plans.
Thursday, July 2, 2009
Reporting requirements and Civil Penalties
IRS requires you to file the required tax returns and information returns by the provided deadlines. Failure to do so results in penalties and interest.
Below is a summary of potential reporting requirements and civil penalties that could apply to a taxpayer, depending on his or her particular facts and circumstances.
A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”).United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year.Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account.See 31 U.S.C. § 5321(a)(5). Nonwillful violations are subject to a civil penalty of not more than $10,000.
A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under section 6048.This return also reports the receipt of gifts from foreign entities under section 6039F.The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner.Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under section 6048(b).The penalty for failing to file each one of these information returns or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the United States person.
A penalty for failing to file Form 5471, Information Return of U.S. Person with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under sections 6035, 6038 and 6046.The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by sections 6038A and 6038C.The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.Taxpayers are required to report transfers of property to foreign corporations and other information under section 6038B.The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under sections 6038, 6038B, and 6046A.Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under sections 6651(f) or 6663.Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A penalty for failing to file a tax return imposed under section 6651(a)(1).Generally, taxpayers are required to file income tax returns.If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A penalty for failing to pay the amount of tax shown on the return under section 6651(a)(2).If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An accuracy-related penalty on underpayments imposed under section 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.
Source: www.irs.gov
Below is a summary of potential reporting requirements and civil penalties that could apply to a taxpayer, depending on his or her particular facts and circumstances.
A penalty for failing to file the Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts, commonly known as an “FBAR”).United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign accounts exceeded $10,000 at any time during the year.Generally, the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account.See 31 U.S.C. § 5321(a)(5). Nonwillful violations are subject to a civil penalty of not more than $10,000.
A penalty for failing to file Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under section 6048.This return also reports the receipt of gifts from foreign entities under section 6039F.The penalty for failing to file each one of these information returns, or for filing an incomplete return, is 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
A penalty for failing to file Form 3520-A, Information Return of Foreign Trust With a U.S. Owner.Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under section 6048(b).The penalty for failing to file each one of these information returns or for filing an incomplete return, is five percent of the gross value of trust assets determined to be owned by the United States person.
A penalty for failing to file Form 5471, Information Return of U.S. Person with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under sections 6035, 6038 and 6046.The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A penalty for failing to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by sections 6038A and 6038C.The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
A penalty for failing to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation.Taxpayers are required to report transfers of property to foreign corporations and other information under section 6038B.The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
A penalty for failing to file Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under sections 6038, 6038B, and 6046A.Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
Fraud penalties imposed under sections 6651(f) or 6663.Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
A penalty for failing to file a tax return imposed under section 6651(a)(1).Generally, taxpayers are required to file income tax returns.If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
A penalty for failing to pay the amount of tax shown on the return under section 6651(a)(2).If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
An accuracy-related penalty on underpayments imposed under section 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty.
Source: www.irs.gov
Wednesday, January 7, 2009
IRS To Help Financially Distressed Taxpayers
Taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action as IRS is considering several options to help the taxpayers.
Some of the areas considered by IRS to help the taxpayers-
- Postponement of Collection Actions in certain hardship situation.
- Added Flexibility for Missed Payments in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship.
- Additional Review for Offers in Compromise on Home Values.
- Prevention of Offer in Compromise Defaults by considering other available options.
- Expedited Levy Releases for hardship reasons.
For detailed information-
http://www.irs.gov/newsroom/article/0,,id=202244,00.html
Source:IR-2009-2, Jan. 6, 2009
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