Even with automatic extensions, missing the original or extended filing deadline triggers penalties and interest. Whether it’s Form 4868 for individuals or Form 7004 for entities, understanding the IRS’s late-filing and late-payment rules and how to cure them can save you significant money and hassle in 2025.
Introduction
An extension buys you time, but it doesn’t exempt you from IRS deadlines for payment or final return filings. Missing the original due date (for estimated payments) or the extended due date (for completing the return) leads to penalties under IRC §6651 and interest under IRC §6601. This guide shows you how much you owe and the steps to cure a missed deadline.
Relevant IRC Codes & Definitions
- IRC §6651(a)(1) Late-filing penalty: 5% of unpaid tax per month (up to 25%).
- IRC §6651(a)(2) Late-payment penalty: 0.5% of unpaid tax per month (up to 25%), unless reasonable cause.
- IRC §6601 Interest on underpayments, compounded daily from original due date.
- IRC §7508A Possible relief (e.g., disaster or hardship extensions) rarely applies without clear events.
IRS & State Form References
| Penalty Type | Form/Code | Rate | Cap |
|---|---|---|---|
| Late-Filing Penalty | IRC §6651(a)(1) | 5% per month | 25% total |
| Late-Payment Penalty | IRC §6651(a)(2) | 0.5% per month | 25% total |
| Interest on Underpayment | IRC §6601 | Federal short-term rate + 3% (daily) | No statutory cap |
| Reasonable-Cause Relief | IRC §6651(c) | Penalties waived if reasonable cause | N/A |
State penalties vary; check state codes for analogous late-filing/late-payment fees.
Real-World Example
Case Study:
- Startup X, a calendar-year S-Corp, filed Form 7004 on March 15 but failed to file Form 1120-S by September 15.
- Tax Due: $50,000
- Late-Filing Penalty: 5% × 50,000 × 6 months = $15,000 (capped at 25% × $50,000 = $12,500)
- Late-Payment Penalty: 0.5% × 50,000 × 12 months = $3,000 (capped at 25% × $50,000 = $12,500)
- Interest: $50,000 × average rate 5% = $2,500/year (prorated for 12 months)
- Total Extra Cost: $12,500 + $3,000 + $2,500 = $18,000
Step-by-Step Cure Process
- File the Missing Return Immediately Electronically if possible.
- Calculate Tax Liability Confirm the exact tax owed.
- Compute Penalties:
- Late-filing: 5%/month up to 25%.
- Late-payment: 0.5%/month up to 25%.
- Compute Interest Use IRS interest rates (published quarterly).
- Pay Tax, Penalties & Interest Via EFTPS or check with remittance form.
- Request Penalty Abatement (if applicable) Submit a written statement showing reasonable cause under IRC §6651(c).
- Retain Documentation Save filed return, payment confirmation, and any abatement request.
- Monitor IRS Notices Respond promptly if IRS adjusts penalties or interest.
- Check State Filings Cure state late filings to avoid state penalties/dissolution.
- Calendar Next Deadlines Set reminders for original and extended due dates.
Conclusion
Missing an extension deadline can be costly but swift action to file and pay can minimize penalties and interest. Accurate calculations, timely submissions, and reasonable-cause requests where warranted can reduce your cure amount significantly.
Call to Action
Need to cure a late filing or reduce penalties?
Book a penalty cure consultation with Anshul Goyal, CPA. We’ll calculate your exact liabilities, file missing returns, and craft penalty-abatement requests to save you money.
Disclaimer
This guide is for informational purposes only and does not constitute legal, tax, or financial advice. Penalties and interest depend on your specific facts, payment dates, and IRS rate changes. Consult a licensed CPA before making payments or requesting abatement.
Anshul Goyal, CPA EA FCA is a U.S.-licensed Certified Public Accountant, IRS Enrolled Agent, and Chartered Accountant in India. He specializes in penalty cure strategies, abatement negotiation, and complete return filing services.
FAQs (Top 5 High-Searched Questions)
1. Can I waive penalties if I have reasonable cause?
Yes IRC §6651(c) allows waivers if you can demonstrate reasonable cause (e.g., natural disaster, serious illness).
2. Does interest accrue after I file late?
Yes interest accrues daily on the unpaid balance until fully paid.
3. Can I pay penalties separately from tax?
No penalties and interest are paid with the tax due; separate remittance is possible but slows processing.
4. Will the IRS automatically reduce penalties?
No abatement requires a written request and demonstration of reasonable cause.
5. Do these rules apply to state returns too?
Similar penalties and interest apply at the state level; consult each state’s tax code and filing portal.