The Nature of IRS Penalties

Taxpayers usually feel apprehensive when confronted with the possibility of being penalized by the IRS or having to pay back taxes. Unbeknownst to them, there are actually guidelines and procedures that will help them deal with these issues. These include negotiations and setting up of installment plans, all directed at eventually dismissing probable penalties and back taxes. To review, cases like not filing tax returns, incorrectly filing of taxes, misleading the IRS and not paying quarterly taxes endanger taxpayers for penalties. For information on the complete list of penalties, including the processes on penalty abatement and assessment, you may refer to the Penalty Handbook. It becomes clear then that aside from the regular collection of taxes, the government also earns through the interests collected from delinquent taxpayers. Because the government wants to ensure that IRS penalties assessment is exercised properly, it provided taxpayers with several courses of action and made the process of dismissing tax levies relatively more friendly. Compared to the outrageous battle it once was, the process is now friendlier. Taxpayers are educated with the basics of interests, levies and penalties abatement when they make time to browse through the IRS Penalties Handbook. This knowledge ultimately reduces our odds of being subjected to these penalties. The IRS Penalty Policy Statement implies that penalties are in principle, no longer automatic. If you can prove that your actions were done in good faith, you may qualify for the cancellation of some or all of your penalties or IRS abatement of penalties. You may ask how much the IRS makes from the collection of penalties alone. Approximately, the total often amounts to over $15 billion. This is certainly a substantial source of income for the government but on the downside, this causes a great deal of frustration on the taxpayers. The situation worsens, for some people, as the penalty is added to the total amount of tax due. As a result, the new larger sum becomes the basis of the interest. Interests on tax debts actually go as high as 25%. Over a very short period of time, this can actually double or even triple the total amount of debt, making it significantly more difficult for the taxpayer to settle the full amount. When you are issued a notice that states that you are being penalized for owing the IRS money, one of the first courses of action to take is to respond to the IRS in writing and make a request for a cancellation of penalties. This is the initial stage in the abatement process, which all taxpayers are entitled to. All of the IRS penalties contain a ‘good faith exception’ clause written into their provisions. This clause provides the IRS with the ability to legally cancel your penalty if they decide that you did not intentionally attempt to defraud or mislead the IRS. Again, IRS penalties can be quite intimidating to common taxpayers, but the presence of alternatives and resources make this matter easier to manage.