President Obama signed in February the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644). The comprehensive trade and customs bill includes an increase in the penalty for failure to file a return.
The failure to file penalty is five percent of the unpaid tax shown on the return for one month, with an additional five percent for each month or part of a month that the failure continues, up to 25 percent. For taxpayers who fail to file their returns more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. The Achieving a Better Life Experience Act of 2014 (ABLE Act) provided for inflation adjustments for certain penalties, including the fail to file penalty, applicable to returns required to be filed after December 31, 2014.
The IRS may abate the penalty for reasonable cause. Generally, this means that if a taxpayer exercised ordinary business care and prudence and was nevertheless unable to file a return, the resulting delay may have been due to reasonable cause. However, every taxpayer’s situation is unique. Some examples of reasonable cause include, but are not limited to, the death or serious illness of the taxpayer or a member of the taxpayer’s immediate family; failure to file resulting from a fire, casualty, natural disaster, or other disturbance; or reliance on erroneous advice from the IRS.
The Trade Act provides that if a return is filed more than 60 days after its due date, then the failure to file penalty may not be less than the lesser of $205 or 100 percent of the amount required to be shown as tax on the return. The increase under the Trade Act is effective for returns required to be filed in calendar years after 2015.