IRS Penalty: Failure To Pay Estimated Tax
Internal Revenue Code (IRC) Section: §6654 for individuals and §6655 for corporations.
Other Names This Penalty Is Called: Underpayment of Estimated Tax Payment, Form 2210 Penalty (individuals), Form 2220 Penalty (corporations)
How This Penalty Is Computed: This is a complex computation that is almost always done by the software that prepares the tax return. The penalty "rate" uses the IRS underpayment interest rate. The penalty is computed by multiplying the penalty rate by the difference of what was paid and what should have been paid. This is all computed on a daily basis. Basically, you want your computer to make this computation.
When Does Interest Start To Run On This Penalty: Interest runs on these penalties from the date the IRS assess the penalty if the taxpayer does not pay the penalty within 10 days. There might be an argument based on the reading of §6601(h) that interest should not be charged on this penalty. We have had mixed luck with this argument.
How To Get Out Of This Penalty: Request a Waiver for the Form 2210 (individual) penalty. There does not appear to be statutory relief for the corporate version of this penalty, but there is no harm in trying.
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It is our experience that tax professionals have better luck at getting IRS penalties abated. If you work with a tax professional, we strongly recommend that you contact them about any IRS penalty issues. It should also be pointed out that no one can guarantee that an IRS penalty will be abated. You don't know that your plea for penalty abatement will work until you have an IRS letter stating that they will abate the penalty!
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We also consult on IRS penalty abatement issues and IRS penalty computations. You are welcome to call us at 1-800-326-6686.