Individual Income-tax Filing Season 2014 Ends on April 15 – Know the Penalties for Being Late

Banker Resource
March 24, 2014 — 1,625 views  
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The American income-tax filing season 2014 gets over on April 15 for citizens who must file their individual income tax returns. If you haven't already filed your returns, it's time to gear up. That is, unless, you plan to seek the six-months extension from the feds.

If history is any indication, there exist several American tax payers who do not understand the binding nature of the deadline. A question that often pops up at this time of the year,  is that is April 15 a non-extendable deadline! If you happen to be one of the lot, struggling with the same question – here's the answer. Yes, it is.

April 15 is a non-extendable deadline. Fail to file your tax returns or officially procure the six-months additional time and the Internal Revenue Service is going to penalize you big time.

Deliquescent filing of returns

According to the Section 6651(a)(1), you are liable to be penalized with an amount worth 5 percent of your total tax liability for the year, for each month that you are late.

Say you are 6 weeks late, that is, a month and a half. The feds will however round it up to two months and you will have to end up paying 10 percent of your net tax liability for the year. While the total penalty is capped at 25 percent – that is no consolation. Why file your returns late and pay extra from your pocket?

File before April 15 or procure the aforementioned extension.

Deliquescent payment of returns

You must not only file your returns, but also pay the net tax liability by April 15. Late payment will subject you to an additional penalty – additional 0.5 percent/month added to your next tax liability, as provisioned for in Section 6651(a)(2).

The maximum liability is again up to 25 percent. However, the important thing to note here is that April 15 is the final deadline for payment. Unlike the filing deadline, where you can seek a six-month extension, you must pay your net tax liability by April 15.

What happens when 6651(a) 1 & 2 apply together?

If both sections apply to you for a month, you will have to pay a penalty amount that is 5 percent minus 0.5 percent. That is, you will be penalized with an amount worth the difference of the penalties provisioned for in section 6651(a)(1) and section 6651(a)(2).

Is there a way out?

The IRS ambiguously mentions the presence of a “reasonable cause” for late filing and no payment as the only way out of a penalty. Examples of such “reasonable causes” include the taxpayer or anyone in his/her immediate family suffering from serious illness or dying. If you can prove your commercial property or business documents were destroyed by fire, or you got misled by erroneous advice from IRS, or, the presence of an unavoidable reason that caused yourFinal Stress Test Guidance Issued

Mid-sized financial firms have been given the final supervisory guidance by regulators for stress tests under the Dodd-Frank Act. The regulators of banks such as the OCC, (Comptroller of the Currency office) FDIC (corporation that insures deposits against failure of banks) and FRB (the reserve board) have issued a guidance which is applicable to banks who have an overall and consolidated assets between $10 and $50 billion. The guidance is descriptive of the expectations that regulators have from stress testing programs.

The regulators had given out rules (final) that needed these banks to run yearly tests back in 2012. The first of the stress tests are required to be carried out by the end of the month, 31 March. As per  the  rules issued in 2012, banks are needed to evaluate the possible consequences of at least three situations such as adverse, baseline or severely adverse on consolidated revenues, losses, capital and balance sheet. Each situation has to be applied on all areas of risk, according to the prescribed rules.

Substitute data

In case financial entities have inadequate data to carry out stress testing programs, they are allowed to make use of other substitute data for its exposures or risk evaluation.However, according to regulators’ guidance, such entities are required to come up with strategies which would give them enough data so that their stress testing programs would be enhanced over a period of time. The guidance would also require banks to show that the substitute information has relevance to their estimations and exposures.

Are results and goals in line?

While mid-sized banks and financial entities don’t need to reach any targets or ratios post-stress tests, the guidance seeks banks to find out if their results after stress testing are in line with their goals and risk scenarios. When they are not in line, then senior-level management is expected to give options for ensuring the results and goals are in harmony.

Rules of stress testing don’t need a bank to chalk out any capital related plan of action or present the same to the regulators. The procedures and policies that stress testing involves should be well-crafted; the processes should be chalked out in a manner that there are no loopholes and can be repeated consistently over a period.

Banks with lower assets

Those banks which have assets lower than $10 billion are not covered under this stress test program. They are covered under other testing programs and guidance issued by regulators. Also, a SLHC, which is a loan-holding and savings company, is not covered under the Dodd-Frank testing of stress till the next year.

absence at the time of the filing, you can escape the penalty.

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