Calculating the Late Payment Penalty and Interest for Individual Taxpayers Residing Abroad

September 03, 2020

By Paul Bleeg and Miri Forster

IRS Treasury Regulation 1.6081-5 provides that the filing due date for a U.S. citizen or resident residing abroad is extended to June 15 instead of April 15.

The IRS has been inconsistent in applying the late payment penalty provided for under IRC Sec. 6651.  In some cases the late payment penalty has been applied erroneously to the balance outstanding on April 15, when it should be based upon the balance outstanding on June15, and the penalty has started accruing from April 15, rather than from June 15.  The IRS has taken a position in these cases that the automatic extension for overseas taxpayers is an extension to file BUT not an extension to pay.  In these cases, when a taxpayer remits a payment toward prior year tax between April 16 and June 15, the late payment penalty is erroneously being calculated based on the balance due as of April 15, with no credit for the subsequent payments made.

Taxpayers that have been penalized based on the April 15 balance due should bring the IRS’s attention to Service Center Advice Memorandum 200236042 which states in part “The Service should use June 15 as the date after which both failure to file and failure to pay penalties will accrue for taxpayers who qualify for the automatic two-month extension under Treas. Reg. §1.6081-5.”  Please be aware that the IRS has provided additional extensions and penalty relief for the 2019 filing year due to COVID-19 and disaster area declarations, and these and other extensions need to be taken into account also.

About Miri Forster

Miri Forster is a Principal and Co-Leader of the Tax Controversy Practice.

About Paul Bleeg

Paul Bleeg is a Tax Partner responsible for overseeing tax compliance and planning in the firm’s Personal Wealth Advisors Group, as well as authoring tax research memorandums on various individual, partnership, corporate and non-profit issues.

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