If you fail to pay your taxes, that failure can result in the IRS levying tax penalties, each penalty can then in turn have an interest penalty that can compound over years and make your tax debt substantially larger than it initially was. Non-payment of penalty debt can then result in even more IRS penalties and even more interest charges which may then allow the IRS to levy your wages or bank account, place a lien against your property, and even seize your personal assets. If you underpay your income tax due to any type of fraud, you may also be subject to a civil fraud penalty, and in certain situations, subject to criminal fraud prosecution placing you at risk for jailtime.
IRS Tax Penalties include:
- Filing your tax return late
- The IRS penalty for filing late is generally 5 percent each month, or partial month, and can be up to 25 percent of the amount due on your tax return.
- Paying your due tax late
- The IRS penalty for paying late is 0.5 percent per month, up to 25 percent of the unpaid amount that is due.
- Frivolous return penalty
You may have to pay a $500.00 penalty if you file a return that does not have enough information to even figure your tax or if your return shows an incorrect tax amount due to frivolous action on your part or a desire to interfere with the IRS system.
Accuracy-related penalty:
An accuracy-related penalty of 20% applies to any underpayment due to taxpayer negligence in reporting or intentional disregard of rules or regulations, or for substantial understatement of income tax.
Understating Income Tax Penalty:
A taxpayer has understated his tax due if the tax shown on your return is less than the correct tax. If the understatement is substantial, more than the larger, 10% of the correct tax or $5,000, a penalty will be applied. The penalty may later be reduced to the extent there is a reasonable basis for the under-reporting.
Fraud in Tax Reporting:
If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax and criminal charges may also be filed.
Tax Penalty Abatement
There are some situations or circumstances in which a taxpayer can have his IRS penalties abated or eradicated either partially or in full for one tax year and for multiple tax years. A taxpayer must submit a request to the IRS for this type of abatement showing extenuating circumstances contributing to his failure to pay the taxes due. The taxpayer must somehow establish that he had a reasonable cause for failing to pay.
IRS procedures employed to decide who will qualify for tax penalty abatement and for what reason seems to be very case specific. The following situations may constitute a reasonable cause for a taxpayer’s failure to pay a tax debt due:
- Victim of embezzlement or theft.
- Fire, flood, windstorm, riot or other disaster beyond your control.
- Bad accounting advice.
- Serious health ailment.
- Serious health ailment of a family member.
- Death of a close family member
Legal Help for Tax Penalties
All and all it seems to be evident that the IRS is not in the business of penalizing taxpayers who have done such things as make an honest reporting mistake or who have demonstrated some kind of severe problem that caused them to fail to report and pay the taxes due. However, to best protect an individual’s rights and interests while attempting to navigate through the complicated maze of tax penalties that can be levied by State and federal taxation authorities, it is only reasonable to seek out the assistance of an experienced professional such as a tax attorney. The cost of getting legal advice that could save your credit rating, your health and your home seems to dim in the face of taxation authorities that can successfully levy civil and criminal penalties that can at worst send a taxpayer to jail at least cost him substantial amounts of money.
