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There is a lot of controversy about the current spending habits of our Federal Administration. Because of the many bailouts and several other reasons, our national debit is at a record high and getting bigger every minute. This has caused the IRS to start looking for ways that they can collect money, and they are changing their practices to bring in revenue. One major change we are seeing is that the IRS is looking at all the laws that they have not been as "strict" on over the past few years and finding ways to cash in on them.
One of the ways that the IRS is changing its practices is with late penalties for filing information returns. An information return is one that is filed with the IRS but does not have a tax attached to it. Income tax returns for S Corporations, LLC's, and Partnerships are all information returns because they are flow through entities and the taxes are paid by the owners of the entities on their personal tax returns. So these returns simply report to or inform the IRS about the income and expenses of the entity. Also included with information returns are the IRS's copy of 1099 forms and W-2 forms. So if you do not file these on time the IRS will fine you.
In the past if you filed an information return late, you may or may not have received a penalty. The enforcement of the late penalty was pretty inconsistent even though the IRS rules provided for a penalty for late filing, and until now, it has not been strictly enforced. Most of the time, we could simply write a letter and get the penalty waived. The IRS has noticed that this penalty has the potential to bring in millions of dollars of revenue so, they are not only sending more letters for penalties for filing late, but they have upped the penalty from $ 400 a month per owner to $ 1000 a month per owner, and they are not waiving the penalties.
So what does this mean to you if you file a late entity return? Let's say you have a LLC with 3 members and you file your return 3 months late. You will now receive a penalty of $ 9000. ($ 1000 x 3 Owners x 3 Months = $ 9000 Late Penalty)
Remember that Corporation tax returns are due March 15th and LLC and Partnership returns are due April 18th this year. If you need help in filing an extension let your accountant know one week ahead of the due date so that they can get confirmation that the extension was filed and accepted. With the IRS growing more strict, they need to have this documented proof of extensions and filings.