The assessment of tax is part of what we are told is the “assessed balance”. As we know, the IRS charges penalty and interest (P&I). Currently (and reviewed quarterly) the IRS interest rate for underpayments is 4%, compounded upon itself, accrued daily. That is not so bad, I wish that I had credit cards at 4%. The most common penalty is failure to pay. This is ½ of 1% per month, then 1% per month after Notice of Intent to Levy (between 6% to 12% annually). The penalty is only calculated on the unpaid tax, as of the end of the month. Combined, the P&I is between 10% to 16% annually.