The IRS has many civil penalties to encourage voluntary tax compliance of taxpayers. Additionally, the IRS charges interest of approximately 3-4% on the tax balance due. The Maryland Comptroller charges interest of approximately 11%-13%.
The Failure to File Return Penalty is 5% of the net amount of tax due on the return for each month the return is delinquent, up to a maximum of 25%. The Failure to Pay Tax Penalty is 0.5% of the tax per month, up to 25%. Accuracy Related Penalty is equal to 20% of the portion of the underpayment attributable to negligence or disregard of rules or regulations, or a substantial understatement of tax.
The non-willful failure to file the FBAR can result in a $10,000 penalty per year. Managerial approval is needed to assert non-willful FBAR penalties up to 50% of the highest aggregate account balance per year. Generally, the willful failure to file FBAR penalty is the greater of either $100,000 or 50% of the highest aggregate account value per year, capped at 100% of the highest aggregate account balance.
The IRS can abate these penalties if the taxpayer can demonstrate reasonable cause and the failure was not due to willful neglect.