Notice Regarding Tax Penalties and Interest

Information About Your Notice, Penalty and Interest

Removal of Penalties

The interest rates on underpayment and overpayment of taxes are as follows:

Beginning January 1, 1999, the interest rate we pay on any overpayment of taxes, except for corporate taxes, is the same as the rate of interest we charge on the underpayment of taxes. The law requires us to determine these interest rates quarterly. From January 1, 1987 through December 31, 1998, the interest rate we paid on an overpayment of taxes was one percent less than the rate of interest we charged on your underpayment of taxes. Effective January 1, 1995, we pay a reduced rate of interest on corporate overpayments that exceed $10,000. This reduced rate is the short-term federal interest rate, plus ½%.

We compound interest daily, except on late or underpaid estimated taxes for individuals or corporations.

We charge a special interest rate of 120 percent of the underpayment rate if:

– The return, not including extensions, was due before January 1, 1990,

– The underpayment was more than $1,000, and

– The underpayment came from a tax-motivated transaction.

We charge interest on penalties for late filing, over or understating valuations, and substantially understating the tax you owe. Also, we charge interest on fraud and negligence penalties if the tax returns, including extensions, are due after December 31, 1988.

We continue to charge interest until you pay the amount you owe in full. After December 31, 1990, the law allows us to charge interest at the underpayment rate plus two percent on large corporate underpayments of more than $100,000.

You may call your local IRS telephone number if the number shown on your notice is a long-distance call for you.

All days mentioned in the paragraphs below are calendar days, unless specifically stated otherwise. The law allows you to tell the IRS where to apply your deposits within the tax return period with a deposit penalty. You have 90 days from the date of the correspondence you received showing the deposit penalty to contact the IRS if you want to specify where to apply your deposits.

Also, the law allows the IRS to remove the deposit penalty if: (1) the penalty applies to the first required deposit after a required change to your frequency of deposits, and (2) you file your employment tax returns by the due date.

Erroneous Written Advice from IRS

We will also remove your penalty if:

– you wrote to IRS and asked for advice on a specific issue,

– you gave IRS complete and accurate information,

– IRS wrote back to you and gave you a specific course of action to take or explained what actions not to take,

– you followed our written advice in the manner we outlined, and

– you were penalized for the written advice we gave you.

To have the penalty removed because of erroneous written advice from IRS you should:

complete Form 843, Claim for Refund and Request for Abatement,

request that IRS remove the penalty, and send Form 843 to the IRS Service Center where you filed your return for the year you relied on erroneous advice from the IRS.

The three documents you must attach to your Form 843 are:

a copy of your original request for advice from IRS,

a copy of the erroneous written advice from IRS, and

a notice (if any) showing the penalty we charged that you now wish us to remove.

Deposit Penalties - IRC 6656

We may charge penalties if you do not make required deposits on time, make deposits for less than the required amount or if you do not use EFTPS when required. We will not charge penalties if you did not willfully neglect to make a proper and timely deposit and you have a reasonable cause. For amounts not properly or timely deposited, the penalty rates are:

– deposits made 1 to 5 days late, 2% —

– deposits made 6 to 15 days late, 5% —

– deposits made 16 days or more late, but on or before the 10th day after the date of the first notice we sent you asking for the tax you owe, 10% —

– deposits made to an unauthorized financial institution, or payments made directly to the IRS, or paid with your tax return, 10% —

– Amounts subject to electronic deposit requirements but not deposited using EFTPS, 10% —

– Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you receive notice and demand for immediate payment, whichever is earlier, 15% —

01 Filing and Paying Late - IRC 6651

We charged a 5% combined penalty of 4-1/2% for filing late and 1/2% for paying late because, according to our records, you filed your return late and didn't pay your tax by the due date of your return. The combined penalty is 5% of your unpaid tax for each month or part of a month your return is late, but not for more than 5 months, which would total 25% (22-1/2% late filing and 2-1/2% late paying).

In addition to the 22-1/2% late filing penalty for the first 5 months your return is late, we continue to charge the 1/2% (1/4% for months covered by an installment agreement) late paying penalty for each month or part of a month for as long as your tax is unpaid, but not for more than 25%. The maximum penalty we can charge is 47-1/2% (22-1/2% late filing plus 25% late paying).

About Your Notice

Reasonable Cause. The law lets us remove or reduce the penalties we explain in this notice if you have an acceptable reason. If you believe you have an acceptable reason, you may send us a signed statement explaining your reason. We will review it and let you know if we accept your explanation as reasonable cause to remove or reduce your penalty. This procedure doesn't apply to interest and, in some cases, we may ask you to pay the tax in full before we reduce or remove the penalty for paying late.

Please enter any additional comments or explanation below:

Signature sections

Department of the Treasury
Internal Revenue Service
www.irs.gov

Notice 746 (Rev. 4-2004)
Catalog Number 63146F