REG: Tax compliance pitfalls and penalties, what triggers them and how to compute or avoid them

The rules, one page each

1. Extensions and timelines: when do failure-to-file and failure-to-pay start, and how to count monthsTimeline

   A valid Form 4868 pushes the filing due date to the extended date; failure-to-pay still begins after the original due date. If the return is late even after the extension, failure-to-file starts the day after the extended due date. Count any part of a month for each penalty from its own start date, applying the 5% overlap rule when both run in the same month.

2. Estimated tax safe harbor 90% vs 100%/110% and withholdingNumbers to know

   An individual avoids the §6654 penalty if prepayments equal at least the lesser of 90% of current-year tax or 100% of prior-year tax (110% if prior-year AGI exceeded $150,000; $75,000 if MFS) and the prior-year return covered 12 months. Wage and IRA withholding is treated as paid ratably across the year; estimated payments are tested by installment due dates.

3. Substantial understatement penalty (§6662): net the exclusions, then test the 10%/$5,000 thresholdStep by step

   For individuals, a substantial understatement exists if the understatement, after excluding items with substantial authority and items adequately disclosed with a reasonable basis, exceeds the greater of 10% of the tax required to be shown or $5,000. If it does, the 20% accuracy‑related penalty applies to the amount of understatement that remains.

4. Cannot pay or file now? What to do to limit penalties and seek reliefWhat next?

   To minimize penalties, file the return or a valid extension by the due date and pay as much as possible by that date; failure‑to‑file is harsher than failure‑to‑pay. After filing, set up payment arrangements and consider first‑time abatement or reasonable‑cause relief when facts support it.