Penalties - Sales, Use, Withholding, Fuel, Franchise and Income Taxes

5% Penalty for Failure to Timely File a Return:

If you do not file your return by the due date and you paid less than 90% of the correct tax, you owe an additional 5% of the unpaid tax.

5% Penalty for Failure to Timely Pay the Tax Due:

If you paid less than 90% of the correct tax due by the due date, you owe an additional 5% of the unpaid tax.

You may be subject to both of the above penalties. 

5% Penalty for audit or examination deficiency:

A penalty of 5% will be added to the unpaid tax if the Department discovers an underpayment during an audit or examination.

75% Penalty for fraud or frivolous tax return filings or willful failure to file a return:

A penalty of 75% will be added to the fraudulent claim or unpaid tax for fraudulent claims or willful failure to file a return. This penalty cannot be waived.

Waivers:

Penalties can be waived under limited circumstances, as described in Iowa Code section 421.27. Complete and submit a Penalty Waiver Request form (78-629) or, for eligible tax types, use GovConnectIowa to request a penalty be waived. An exhaustive list of penalty waivers can be found on the Penalty Waiver Request form.

$500 Civil Penalty:

A $500 civil penalty is assessed when a return is considered to be a “frivolous return.” A “frivolous return” is a return that lacks sufficient information to determine the substantial correctness of the amount of tax liability or contains information that indicates the amount of tax shown is substantially incorrect and this conduct is due to a position of law taken that is frivolous or a desire to delay or impede the administration of the tax laws of Iowa.

$1,000 Penalty for Failure to File after Demand

A $1,000 penalty is assessed when a taxpayer continues to fail to file 90 days after the Department issues a demand letter. A separate penalty will be assessed for each unfiled return listed in the demand letter. This penalty is in addition to the failure to file penalties listed above.

Late File Penalties Applicable to Specified Businesses

C corporations, S corporations, financial institutions, and partnerships required to file an Iowa income or franchise tax return with no tax due will be assessed a penalty on the entity’s imputed Iowa liability if they fail to timely file the return. The business’s imputed Iowa liability is equal to its Iowa net income after the application of the Iowa business activity ratio, if applicable, multiplied by the applicable tax rate for the tax year, less any Iowa tax credits available to be claimed by the business. The penalty is equal to the greater of $200 or 5% of the imputed liability, not to exceed $25,000.

If a business subject to this penalty willfully fails to file a return with no tax due with intent to evade a filing requirement or with the intent to evade reporting of Iowa-source income, the penalty is equal to the greater of $1,500 or 75% of the imputed Iowa liability. This penalty cannot be waived.

Rent Reimbursement

If you knowingly make a false claim and the claim was paid to you, you will be billed back for any payment you received. You may also be subject to a 75% penalty for making a false or frivolous claim.

Fuel Tax Only

In addition to the penalties described above, the following two penalties also apply to fuel tax:

  • Failure to pay electronically: A penalty of 5% will be added to the tax due if the payment is not received electronically through GovConnectIowa or ACH Credit as required.
  • Failure to use the required method of filing: The tax return information must be reported through GovConnectIowa. If not, a penalty of 5% of the amount of tax due will be added.


This summary is based on Iowa Code section 421.8 and 421.27 and Iowa Administrative Code chapter 701-10.