Is Ultratax's calculation of Failure to Pay Penalty Correct for 90% paid taxes?

The 90% rule you're finding is indeed related to estimated tax payments (to avoid the underpayment of estimated tax penalty), not the Failure to Pay penalty. You're right that the Failure to Pay penalty generally applies to any unpaid amount after the tax deadline. However, there's an important exception that might explain what Ultratax is doing. When taxpayers file an extension AND pay at least 90% of their tax liability by the original due date, they can qualify for penalty relief for the first 6 months. This was outlined in IRS Notice 2019-25, and may have been continued since. The extension basically gives them protection against the Failure to Pay penalty until the extension deadline, though interest still accrues. That said, if your client's extended deadline has also passed and they still haven't paid the remaining balance, there should be a Failure to Pay penalty calculated on the remaining unpaid amount for the period after the extension deadline.

I was pulling my hair out with a similar issue last year, then I found taxr.ai (https://taxr.ai) and it helped me figure out whether the penalties the IRS was assessing were actually correct. I uploaded my client's documents and it analyzed everything including the proper penalty calculations. Turns out my software was calculating things incorrectly because of a weird quirk with extended returns. The tool basically explained that there are several exceptions to the Failure to Pay penalty, and it sounds like your situation might fall under one of them. It also pointed out which IRS publications addressed my specific scenario, which was super helpful when I had to explain things to my client.

Just wanted to follow up - I actually tried taxr.ai for a similar penalty issue I was dealing with. Super helpful! My client had paid about 85% of their taxes before the original due date, filed an extension, and then paid the rest after the extended deadline. The IRS notice they received had incorrect penalties. The tool showed exactly which penalty regulations applied and which didn't. There's a specific rule about reasonable cause abatement that applied in my case. I was able to draft a response to the IRS with the exact references needed, and they adjusted the penalty down. Definitely worth checking out if you're dealing with penalty calculations regularly.

I had the EXACT same issue you're describing, but not with Ultratax. After spending HOURS waiting on hold with the IRS and getting nowhere, I used Claimyr (https://claimyr.com) to actually get through to an IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that if an extension was filed AND 90% was paid by the original due date, the failure to pay penalty doesn't start until after the extension period ends. The interest still applies from the original due date though. The agent explained that there's a distinction between the underpayment penalty and the failure to pay penalty in these situations.

I need to publicly eat my words. After my skeptical comment, I was desperate to resolve an issue with penalties similar to what you described, so I tried Claimyr. Within 30 minutes I was talking to an actual IRS agent who was incredibly helpful. The agent confirmed exactly what you suspected - Ultratax was calculating correctly. For extended returns where at least 90% was paid by the original due date, the failure to pay penalty doesn't kick in until after the extension period. Interest still applies from the original due date though. This saved my client almost $700 in penalties they didn't actually owe. Sometimes the software knows things we don't!

I think there's some confusion here about the different penalties. There's: 1. Failure to File penalty - this is waived if you file an extension and then file by the extended deadline 2. Failure to Pay penalty - typically applies to any unpaid balance after the original due date 3. Underpayment of Estimated Tax penalty - waived if you paid 90% of current year or 100% of prior year tax In my experience, Ultratax is actually correct here. If they filed an extension AND paid 90% by the original due date, the Failure to Pay penalty is reduced for the extension period (though not eliminated completely). The IRS has specific rules for this scenario that most people don't realize.

Ok but what if my client paid exactly 90% and not a penny more? Does the software round in their favor or does it need to be slightly over 90%? Our firm uses different software and I'm curious if there are any edge cases I should watch for.

This is a great discussion! I've been dealing with similar penalty calculations and it's clear there's a lot of nuance here that even experienced practitioners sometimes miss. From what I'm seeing in the responses, it sounds like Ultratax might actually be correct in your situation. The combination of filing an extension AND paying at least 90% by the original due date does provide some protection from the Failure to Pay penalty during the extension period. However, I'd still recommend double-checking this with the IRS directly or using one of the tools mentioned here to verify. The stakes are too high to just assume the software is right without confirmation. I've seen cases where software gets updated penalty calculations wrong, especially when there are special provisions or recent rule changes. Also worth noting - even if the Failure to Pay penalty doesn't apply during the extension period, make sure your client understands that interest is still accruing from the original due date on that unpaid $8,000. That can add up over time even without penalties.