Late-Filing Penalties and Interest
Missing a tax deadline can be stressful — and expensive. When returns or payments are filed late, both the IRS and the California Franchise Tax Board (FTB) assess penalties and interest that can grow quickly over time. Many taxpayers underestimate how fast these charges accumulate or assume they can be resolved easily later.
Understanding how late-filing penalties work is the first step to limiting the damage.
Failure-to-File vs. Failure-to-Pay
The IRS and FTB impose separate penalties depending on what was missed:
Failure-to-file penalty: Applies when a return is filed after the deadline (including extensions).
Failure-to-pay penalty: Applies when tax is not paid by the original due date, even if the return was extended.
The failure-to-file penalty is generally much higher than the failure-to-pay penalty.
How Penalties Are Calculated
Penalties are typically assessed as a percentage of the unpaid tax, accruing monthly until capped. In addition:
Interest accrues daily on both the unpaid tax and penalties
Rates are set by law and can change quarterly
California penalties often mirror federal structures but are assessed separately
What starts as a small balance can grow substantially over time.
Extensions Don’t Stop Interest
A common misconception is that filing an extension delays all consequences. In reality:
Extensions delay the filing deadline, not the payment deadline
Interest begins accruing from the original due date
Failure-to-pay penalties still apply
Paying as much as possible by the original deadline reduces exposure.
When Penalties Can Be Reduced or Removed
In some cases, penalties may be reduced or abated due to:
Reasonable cause (illness, natural disaster, records unavailable)
First-time penalty abatement eligibility
IRS or FTB administrative errors
Interest is rarely waived, but penalties often can be with proper documentation.
Common Triggers for Late Penalties
Late-filing issues frequently arise due to:
Missing documents or late K-1s
Complex returns filed on extension
Cash-flow issues delaying payment
Misunderstanding deadlines
Ignoring tax notices
Addressing the issue early can prevent escalation.
Why Ignoring Notices Makes Things Worse
Unresolved balances can lead to:
Additional penalties and compounding interest
Liens or levies
Wage garnishments
Seizure of refunds
Prompt action often keeps matters manageable.
How All California Accountancy Can Help
At All California Accountancy, we help clients:
File delinquent returns
Calculate and minimize penalties and interest
Request penalty abatement
Set up payment plans
Respond to IRS and FTB notices
Late filings don’t have to spiral out of control — but timing and strategy matter.
Disclaimer
This article is for educational purposes only and does not constitute legal, tax, or accounting advice. Consult a qualified CPA regarding your specific situation.
IRS Circular 230 Disclosure: Any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties or promoting, marketing, or recommending any transaction or matter addressed.