So, from someone who understands this a little bit better than I, I could use some advice:
I have my monthly IRS statement here, it looks like this:
Note: Penalty and Interest totals are cumulative, and are calculated to the Due Date shown above. For more information on your penalty and interest computations, you may call 1-800-829-0922.
All installment agreement payments will be applied to the oldest tax owed, then penalties, then interest. [...]
So what I can't figure out from this, and I don't yet want to call them, is the following: Am I being charged MORE in penalties because of that additional year? As in, would it make some sort of logical sense to pay off the 2005 year ASAP, to avoid paying double penalties instead of single? OR is it simply the case that it's a compound amount.
One source I found says that the penalty is .5 percent per month, up to 25% of the total amount. Even that's unclear to me, as that would mean that after 50 months (four years, two months) such an amount would be maxed out, but the penalties I'm paying from 2004 don't appear to be anywhere near 25 percent of my amount-due.