The Internal Revenue Service (IRS) of the US is responsible for imposing penalties for failures in local, state or federal tax payments. These penalties are referred to as IRS penalties and these are imposed as per the federal tax law. IRS Penalties can be monetary, jail term or forfeiture of property. You will have to face such penalties when you fail to file your Income Tax return, file inaccurate information, and pay your tax by due date or such issues. Some of the common IRS penalties are discussed here.
1. Failure to File
If the income tax return is not filed on or before the given due date, you will be penalized with a 5% of the tax amount for each month of nonpayment. This can become 100% if it is not filed more than 60 days after the due date.
2. Failure to Pay
This penalty is imposed if you fail to pay the tax amount within the due date. Penalty is usually 0.5% of the unpaid tax amount for each month. However, this can be exempted with a 6-month extension if you have paid 90% of the tax amount before the due date of filing return.
3. Substantial Understatement of Tax
You may be imposed with a penalty when you understate your tax amount (in your IT return file) substantially lesser than the actual tax amount. For individuals, understatement is regarded substantial if it is more than larger of 10% of the correct tax or $5,000. For corporations it becomes substantial if it is more than lesser of 10% or $10,000,000.
4. Negligence Penalty
Failure of Complying with the internal revenue laws or failure of carefully preparing tax returns or failing to Keep adequate book keeping to substantiate the items can lead way for getting negligence penalty.
5. Civil Fraud Penalty
When you underpay your tax by means of fraud, then you are imposed with a penalty of 75% of the unpaid tax amount. However it is imposed after the fraud is investigated by the IRS criminal Investigation Division.
6. Frivolous Tax Return Penalty
You may be imposed with a $5,000 penalty if you file frivolous submissions of IT return. Frivolous filing means filing with inaccurate and insufficient information.
7. Bounced Check Penalty
If the check you paid for tax payment bounces, then you have to pay a fine of 2% of check amount or $25 whichever is less.
Get Legal Advice
The penalties given here are just for informational purpose. Hence, you are advised to approach a tax attorney and get the updated details on to IRS penalties and ways to prevent them.
