Types of Penalties: The Facts

Your IRS problems are growing if you owe a tax liability. Penalties are assessed to unpaid taxes until the bill is paid in full. It may be compounded by IRS personnel or IRS computer.

Originally meant to discourage taxpayers from missing tax payments, penalties are now a source of additional revenue for the IRS.

Categories of Penalties

• Combined Penalties
• Late Filing of Tax Return Penalties
• Failure to Pay Taxes Penalties
• Fraud Penalties
• Accuracy Penalties

An accuracy penalty of twenty per cent is imposed if you downplay your tax return’s income tax liability.

Fraud penalties are assessed if you fraudulently excluded or understated your income on your tax return. This is 75% of the exluded figure.

Failure to pay taxes penalties are compounded at 0.25% to 1% each month of the figure you failed to pay on time. It begins at 0.50%. If you arrive at an installment agreement, this is dropped to 0.25% every month. If you don’t pay and are later served with a Notice of Intent to Levy, the penalty can raise to one per cent each monthon the amount due. This penalty begins on April 16 and 0.50% is compounded to your liability on the 16th day of each month.

Penalties for late filing of tax return can range from five per cent to twenty-five per cent montly.

Combined penalties are combinations of two or more penalties and they add up fast.

If the mistake was caused by incorrect advice from an IRS official and you can show it, the IRS will not evaluate penalties. Prove that when you necessitated the IRS for advice, you gave correct tax information to the IRS.

If you will prove reasonable cause why you did not comply with the tax law, you can get rid of or lessen penalties. This should be done in writing.

Reasonable cause can be financial, medical, and personal issues, or anything that proves that you acted with “ordinary business care and prudence, and a valid reason for failing to act.