IRS Interest and Penalties: 2024 Update

Failing to file all necessary returns and pay all federal taxes when due can expose U.S. taxpayers to interest and penalties. This includes not only civil penalties but also criminal penalties in some cases. Interest and civil penalties begin to accrue immediately upon noncompliance, while criminal penalties can result from inquiries conducted by IRS Criminal Investigation (IRS CI).

For high-income and high-net-worth taxpayers, the costs of noncompliance can be substantial. Here, Texas tax attorney Lawrence Brown provides an overview of the IRS’s interest and penalty calculations for 2024:

Interest for Past-Due Federal Taxes

The interest rates for past-due federal taxes are different for different taxpayers. The IRS also has the authority to adjust its interest rates quarterly. The IRS increased its interest rates across the board in the fourth quarter of 2023, and they are remaining the same for the first quarter of 2024:

• Corporate and Individual Underpayment: 8 percent
• Large Corporate Underpayment (LCU): 10 percent

As the IRS explains, “[i]nterest will accrue on any unpaid tax, penalties and interest until the balance is paid in full. The interest rates we charge . . . on . . . underpayments are compounded daily. This means the interest is assessed on the previous day’s balance plus the interest.” The LCU interest rate applies to underpayments by C-corporations that exceed $100,000.

Civil Penalties for Federal Tax Violations

Several provisions of the Internal Revenue Code (IRC) impose civil penalties for noncompliance. Laws such as the Bank Secrecy Act (BSA) and Foreign Account Tax Compliance Act (FATCA) impose civil penalties (and, when warranted, criminal penalties) for noncompliance as well. Civil penalties that apply under the IRC, BSA and FATCA in 2024 include (but are not limited to):

• Failure to File (IRC Section 6651(a)(1)) – Failure to file a tax return as required under Section 6651(a)(1) of the IRC carries a penalty of 5 percent of the unpaid tax for each month (or part of a month) for which the return remains unfiled, up to a maximum penalty of 25 percent of the tax owed.
• Failure to Deposit (IRC Section 6656(a)) – Failure to make a deposit as required under Section 6656(a) of the IRC carries a penalty of 2 percent of the unpaid deposit for the first five calendar days, increasing incrementally to 15 percent of the unpaid deposit 10 days after the taxpayer receives notice from the IRS.
• Failure to Pay (IRC Sections 6651(a)(2) and (3)) – Failure to pay federal tax when due carries a penalty of 0.5 percent per month, subject to a maximum penalty of 25 percent of the tax owed. For individuals with approved payment plans, this is reduced to 0.25 percent per month. However, the failure-to-pay penalty increases to 1 percent per month once the IRS issues a notice of intent to levy.
• Accuracy-Related Penalties (IRC Sections 6662(a) and (d)) – For inaccurate filings, the IRS imposes a 20 percent penalty. This is calculated as a percentage of the underpayment “that happened because of negligence or disregard,” except in the case of a “substantial understatement,” when the penalty is 20 percent of the total understated amount.
• Civil Tax Fraud Penalties (IRC Section 6663(a)) – Under Section 6663(a) of the IRC, “[i] f any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.”
• Trust Fund Recovery Penalty (IRC Section 6672) – For 2024, the trust fund recovery penalty remains unchanged. Under Section 6672 of the IRC, the IRS can impose a penalty equal to the total amount of the tax evaded for employers’ trust fund violations.
• Disclosure Violations Under FATCA – Failure to disclose a taxpayer’s foreign financial assets in accordance with FATCA carries a civil penalty of $10,000, with an additional $10,000 penalty applied every 30 days after receiving notice of noncompliance from the IRS. This is subject to a maximum penalty of $60,000.
• Disclosure Violations Under the BSA – The civil monetary penalties for violations of the BSA are adjusted annually for inflation. As of January 25, 2024, the civil penalties for willfully violating the BSA range from $69,733 to $278,937.

Criminal Penalties for Federal Tax Violations

In criminal enforcement cases, taxpayers can face both fines and prison time. Multiple sections of the IRC include provisions for criminal enforcement, and the BSA contains criminal enforcement provisions as well. Some examples of the potential criminal penalties for federal tax violations include:

• Willful Failure to File a Tax Return (IRC Section 7203) – While failure to file carries civil penalties in most cases, willful failure to file can carry criminal penalties including a $25,000 fine ($100,000 for corporations) and up to a year of federal imprisonment.
• Attempt to Evade or Defeat Tax (IRC Section 7201) – Willfully attempting to evade or defeat any federal tax in any manner is a federal crime that carries up to a $100,000 fine ($500,000 for corporations) and up to five years of federal imprisonment.
• False Statements and Other Forms of Fraud (IRC Section 7206) – Under Section 7206 of the IRC, making false statements to IRS agents and engaging in other fraudulent practices can carry up to a $100,000 fine ($500,000 for corporations) and up to three years of federal imprisonment.
• Bank Secrecy Act Violations – Under the BSA, offshore disclosure violations can trigger criminal prosecution in some cases, with targeted taxpayers facing up to a $250,000 fine and five years of federal imprisonment.

Request a Confidential Consultation with Texas Tax Attorney Lawrence Brown

Regardless of the risks you are facing, if you need to resolve a significant tax controversy with the IRS (or IRS CI), it is important that you engage experienced defense counsel promptly. At Brown Tax, P.C., we represent high-income and high-net-worth taxpayers in all types of IRS and IRS CI matters. To request a confidential consultation with Texas tax attorney Lawrence Brown, please call 888-870-0025 or contact us confidentially online today.