@fanfare wrote:
@dmertz --
If you submit today a 2005 1040-X with a 6% additional tax on 2005 Form 5329 Line 25,
is the IRS going to hit you with late payment interest on the amount on 2005 Form 5329 Line 25 ?
Yes, that's the problem with the penalties and interest. There is a penalty of 0.5% per month of the amount not paid, and interest which is a variable rate that has been as low as 3% and is currently around 8%. The penalty is capped at 25% in most cases, but the interest is not. For the 2006 penalty of $240, there is a minimum penalty of $60, plus interest (lets assume an average APR of 5% just for simplicity) back-calculated to April 15, 2007. The total debit is about $600, $240 of tax and $360 of interest and penalties. Then for the 2007 penalty of $720, there is a minimum of $180 penalty plus interest back-dated to April 15, 2008. And so on. The interest is significantly more than the actual amount of penalties.
