IRS: Interest Rates to Remain Unchanged for Q1 2022

The Internal Revenue Service (IRS) recently announced that the interest rates for delinquent tax payments will remain unchanged for the first quarter of 2022. This is now the sixth consecutive quarter in a row—dating back to the start of the economic impacts of the COVID-19 pandemic—that the IRS’ interest rates have stayed constant. In this article, Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what individual and corporate taxpayers need to know if they fall behind on their federal income tax liability.

Delinquent Tax Interest Rates for Q1 2022

The IRS’ interest rates for delinquent tax payments are tied to the federal short-term interest rate under Section 6621 of the Internal Revenue Code (IRC). With the federal short-term interest rate remaining at a historic low due to the effects of the pandemic, the delinquent tax interest rates are remaining relatively low for the first quarter of 2022 as well. Heading into the New Year, the interest rates for delinquent tax payments are as follows:

• 3 percent for underpayments
• 5 percent for “large corporate underpayments”

A “large corporate underpayment” is defined in Section 6621(c)(3) as, “any underpayment of a tax by a C corporation for any taxable period if the amount of such underpayment for such period exceeds $100,000.” For federal income tax purposes, a “taxable period” is the relevant tax year.

Dealing With Tax Underpayments to the IRS

Unpaid federal income tax liability begins to accrue interest immediately. Over time, the interest owed on even relatively modest unpaid tax liability can become substantial. Individual and corporate taxpayers may accrue penalties as well, and debts owed to the IRS do not simply go away. If the IRS discovers an underpayment, it can initiate an audit and take collection action. If the underpayment appears to be intentional, the IRS’ Criminal Investigation Division (IRS CI) may investigate the taxpayer and work with the U.S. Department of Justice (DOJ) to pursue criminal tax fraud or tax evasion charges.

Given these risks, how should taxpayers deal with underpayments to the IRS? Generally speaking, a proactive approach is best. If individual and corporate taxpayers can resolve their tax payment deficiencies before being contacted by the IRS or IRS CI, this can greatly reduce the risks involved.

In terms of potential solutions, there are a variety of options. In some cases, taxpayers may simply be able to amend their returns. However, this can run the risk of being labeled a “quiet disclosure” in some cases, and the IRS disfavors this practice. Submitting a voluntary disclosure may also be an option, and some taxpayers that are unable to pay the full amount they owe will qualify for a settlement agreement or offer in compromise (OIC).

Discuss Your Options with Boston Tax Lawyer Kevin E. Thorn

If you are behind on your federal income tax obligations and would like to know more about the options you have available, we encourage you to get in touch. To schedule a confidential consultation with Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989, email ket@thornlawgroup.com or request an appointment online today.