Is it possible this is the IRS wrong penalty? If yes, then what?

[TwylaMay]

I think my Mom & Dad might have been assessed the wrong IRS penalty. I'm not sure what they should do next. Here are the details . . .

My elderly father made a mistake on his 2021 federal tax return while using TurboTax & significantly under represented the taxable amount of his federal pension. I realized this in 2024 & helped him file an amended return to correctly report the additional income. He paid the additional amount of tax owed when we sent in the amended return. We did not attempt to calculate the interest or penalties.

The IRS finally sent a letter last week stating how much he & my mom owe in penalties & interest. The letter states the penalty is a "failure-to-file penalty," which I do not understand as he did file his original return on time, albeit with a large error related to his pension income.

I understand there is also a penalty for "substantial underpayment of income tax", which I believe would apply to him because he had to pay an additional ~$23K in tax due to his error.

Bottom line, I'm confused & wondering if they should call the IRS about this, or just leave well enough alone. The "substantial underpayment of income tax" penalty would be even more than the "failure-to-file penalty" if I'm understanding it correctly.

Any thoughts on this? If a person filed their return in a timely manner, should they be assessed the "failure-to-file penalty"? Thanks for your insights!

[Mike9241]

does the letter cite the code sections for the penalties.

you say the return was filed timely but what do the IRS records show?  

if it was timely filed there should be no failure to file penalty [IRC 6651(a)(1)] but there should be the failure to pay penalty [(IRC 6651(a)(2)]. in addition, there possibly should have been an accuracy related penalty (IRC 6662), 20% of the underpayment attributable to any of the following: a) negligence or disregard of rules and regulations - failure to make a reasonable effort to comply with the tax laws, including failure to keep adequate records or to use ordinary and reasonable care in preparing the return b) substantial understatement of income tax  - generally the greater of 10% of the correct tax or $5,000.

the IRS does make errors, but you don't want to end up in a worse position then present. If you decide to do anything, I suggest you use a tax pro to review the situation to determine what penalties apply.