In the simplest terms, avoiding penalties and interest is a matter of filing your tax returns and paying the correct amount of taxes on time. If you are unclear about any of your tax responsibilities, use the resources described in the publication to learn more about your filing requirements. Penalties for late filing and delinquent taxes are generally based on the amount of tax that is overdue. Interest on gift and estate and generation skipping tax deficiencies is also computed at the federal short-term rate plus two percent. Generally, interest rates for all other tax deficiencies conform with the federal practice of using the federal short-term rate plus three percent.
All interest is compounded daily.