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What really upsets taxpayers are the added IRS penalties and interest the IRS adds on. It's prohibitive - if you couldn't pay the tax, you sure as heck can't pay the tax and prohibitive interest and penalties

Each year the IRS penalizes millions of taxpayers. In one recent year, the IRS issued over $18,000,000,000.00 (that's 18 Billion, or 18 thousand million dollars) in penalties -- a huge number.

The Internal Revenue Service has so many penalties that it's often difficult to understand which penalty or penalties are being applied against you. Wall and Associates wants to help!

The most common are: Failure to File and Failure to Pay. Both of these can substantially increase the total amount you owe the IRS in a very short period of time. To make matters worse, the IRS charges you interest on its penalties.

Taxpayers often find out about IRS problems years after they have occurred. This causes the amount owed to be substantially greater due to accumulated penalties and interest. A tax consultant can help.

Some IRS penalties can be as high as 75% to 100% of the original taxes owed. While many taxpayers can afford to pay the taxes owed, the additional IRS penalties and interest often make it impossible to pay off the entire balance.

The original goal of the IRS in imposing penalties was to punish taxpayers in order to keep them in line. Unfortunately, these penalties have turned into additional sources of income for the IRS, the amounts of which are used to measure the performance of IRS managers.

However, based on a range of reasons, the IRS may abate penalties. Therefore, before you pay the IRS any penalty amounts, discuss your situation with one of our tax professionals who can advise you and represent you in working with the IRS to abate your penalties.

3 IRS Tax Penalties scenarios

Failure-to-File, Failure-to-Pay and other Common Penalties

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. Wall and Associates can help you claim another fate. You may also have to pay a penalty if you substantially understate your tax, file a frivolous return, or fail to supply your social security number.

Don't hesitate in seeking IRS tax help. Here is a list of common IRS Penalties:

Failure-to-file penalty -- If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is 5% of the tax not paid by the due date for each month or part of a month that the return is late.

This penalty cannot be more than 25% of your tax, but it is reduced by the failure-to-pay penalty (discussed next) for any month both penalties apply. However, if your return is more than 60 days late, the penalty will not be less than $100 or 100% of the tax balance, whichever is less. You may not have to pay the penalty if you can show reasonable cause for not filing on time.

Failure-to-pay penalty -- You may have to pay a penalty of 1/2 of 1% of your unpaid taxes for each month or part of a month after the due date that the tax is not paid.

This penalty cannot be more than 25% of your unpaid tax. You may not have to pay the penalty if you can show good reason for not paying the tax on time.

Penalty for frivolous return -- You may have to pay a penalty of $500 if you file a return that does not include enough information to figure the correct tax, or that shows an incorrect tax amount due to:

  • A frivolous position on your part, or
  • A desire to delay or interfere with the administration of federal income tax laws.

This penalty is in addition to any other penalty provided by law.

Accuracy-related penalty -- An accuracy-related penalty of 20% applies to any underpayment due to:

  • Negligence or disregard of rules or regulations, or
  • Substantial understatement of income tax.

This penalty also applies to conditions not discussed here.

Even though an underpayment was due to both negligence and substantial underpayment, the total accuracy-related penalty cannot exceed 20% of the underpayment. The penalty may not be imposed if there is reasonable cause accompanied by good faith.

Negligence -- includes the lack of any reasonable attempt to comply with provisions of the Internal Revenue Code. Some negligence can lead to tax garnishment.

Disregard -- includes the careless, reckless, or intentional disregard of rules or regulations.

Substantial understatement of income tax -- for an individual, income tax is substantially understated if the understatement of tax exceeds the greater of:

  • 10% of the correct tax, or
  • $5,000.

Information reporting penalties -- any person who does not file an information return, or a complete and correct information return with the IRS by the due date, is subject to a penalty for each failure.

A penalty applies to information returns as follows:

  • Correct information returns filed within 30 days after the due date, $15 each.
  • Correct information returns filed after the 30-day period but by August 1, $30 each.
  • Information returns not filed by August 1, $50 each.