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In a recent release, the IRS described a taxpayer’s liability for "additions to tax" under Code Sections 6651(a)(2) and 6651(a)(3). Both taxes apply to a failure to pay tax, but they apply in different situations.

IRS Explains “Additions To Tax”

  • 4/18/2012

IRS Explains “Additions To Tax”

In a recent release, the IRS described a taxpayer’s liability for "additions to tax" under Code Sections 6651(a)(2) and 6651(a)(3). Both taxes apply to a failure to pay tax, but they apply in different situations.

CCH Take Away: This release serves as a reminder that taxpayers not only have to pay their "basic tax liability," but may also be assessed interest, penalties, and/or additions to tax for failing to report and/or pay their taxes on time.

Code Sec. 6651(a)(2)

Code Sec. 6651(a)(2) imposes an addition to tax on a taxpayer who reports an amount due on a tax return but fails to pay that amount by the payment due date. Under Code Sec. 6151(a), the payment due date is the due date of the return without extensions. The IRS says this provision penalizes taxpayers for failing to pay the amount of tax shown on the return by the payment due date.

The amount shown as tax is the total tax on Form 1040, on the line above the payments section, minus refundable credits. For purposes of this penalty, the tax is not based on amounts shown on an amended return.

Code Sec. 6651(a)(3)

Code Sec. 6651(a)(3) imposes an addition to tax on a taxpayer who fails to pay an amount of "tax required to be shown on a return, which is not so shown," within 21 days after the IRS gives notice and demand for payment. Thus, this addition to tax applies to amounts subsequently assessed, and penalizes taxpayers for failing to pay tax by the last date specified on the notice, under Code Sec. 6155.

The tax required to be shown, which is not so shown, is the same amount that should have been shown as tax on the return filed. The amount includes deficiencies and other amounts subsequently assessed but not shown on the original return. The tax is also imposed on the failure to pay additional tax from an amended return, because the additional amount was required to be shown on the original return but was not shown.

Examples

Example 1: The taxpayer files a return reflecting tax of $2,000, claims estimated taxes of $1,600, and pays the balance of $400 due. However, the taxpayer only paid $1,200 of estimated taxes, and owes an additional $400. Since the amount shown as tax remains unchanged, the IRS stated that the taxpayer is liable for a failure to pay tax under Code Sec. 6651(a)(2). Code Sec. 6651(a)(3) does not apply because the taxpayer accurately reported his tax liability on his original return.

Example 2: The taxpayer, a corporation, files a return reflecting tax of $500,000. After 45 days, the taxpayer pays $507,400, reflecting taxes, interest and penalties. The IRS examines the return and determines a deficiency of $100,000. The amount subject to Code Sec. 6651(a)(3) is the full $100,000 deficiency. The amounts paid for interest and penalties cannot be subtracted from the deficiency amount.

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