Fraudulent Failure to File Penalty

IRS Definition

Tax law provides for an increase in the penalty rate for failure to file if the failure to file is fraudulent. The penalty rate is increased from 5 percent per month to 15 percent for each month or part of a month the return is late, and the maximum penalty is increased from 25 percent to 75 percent.

The Fraudulent Failure to File (FFTF) penalty is asserted on a case-by-case basis after considering all the facts and circumstances surrounding the failure to file. There must be clear and convincing evidence that the failure to file was done with the intent to evade taxes.

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For the fraudulent failure to file penalty to be imposed, the IRS must provide “clear and convincing evidence” that the taxpayer failed to file a return with intent to evade taxes. If you forget to file a return or just put off filing a return, it usually does not rise to the level of a fraudulent failure to file penalty. However, a failure to file penalty will be charged, unless the taxpayer can show reasonable cause or qualifies for first-time abatement.

When the IRS proposes a fraudulent failure to file penalty, you will be sent a letter that gives you 30 days to appeal the penalty. If you lose the appeal and still want to dispute the penalty, you will have to pay the penalty and then file a claim for refund.

Learn how to address IRS penalties.