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Tax Penalties from the IRS Explained

Types of IRS tax offenses and the penalties that come with them.

By Becky Schmitz, EA, CTRS

So you didn’t file your tax returns or filed them late and you’re wondering what penalties you’ll have. Here are some of the most common IRS tax offenses and the penalties that go along with them:

• Offense: Late filing
  Penalty: 5% per month of net tax due up to 25% for late filing. If the tax return is more than 60 days late, the minimum penalty is $100 or 100% of tax owed, whichever of the two amounts is less. Taxpayers who can show reasonable cause for filing late may not have to pay the penalty.
• Offense: Unpaid taxes
  Penalty: ½ to 1% of unpaid taxes for each month or part of a month after the tax due date. Penalty doesn’t apply during the extension period and can’t exceed 25% of the unpaid tax. Taxpayers who can show reasonable cause for not paying may not have to pay the penalty.
• Offense: Fraud
  Penalty: 15% for each whole and part month. Maximum penalty is 75%.
• Offense: Frivolous tax return
  Penalty: $500 for not including enough information to calculate the correct tax, if the return includes an incorrect tax amount because of a frivolous position on the taxpayer’s behalf, or if the taxpayer tries to interfere or delay administration of federal income tax laws. Penalty is in addition to other penalties the law might call for.
• Offense: Inaccurate tax returns
  Penalty: Maximum penalty of 20% for underpayments that greatly understate income tax (underestimating by at least $5,000 or 10% of the correct tax) or disregarding or negligence of rules. Taxpayers who can show reasonable cause for filing incorrect returns may not have to pay the penalty.
• Offense: Incorrect social security and other identification numbers
  Penalty: $50 each time it happens.

Taxpayers may also have to pay interest based on how much tax they owe. The interest is added for every day the balance is not fully paid. Rates change but often fall around 6% a year.

This is a list of basic tax-related penalties. Other types of IRS tax penalties exist. For information on penalties that may not be listed here as well as how to get rid of IRS tax penalties, contact a tax problem resolution firm for help.

Whether you pay the penalties or try to reduce them, be sure to do something because aside from fee-based penalties, taxpayers may have to go to trial which can lead to jail time for offenses like not filing returns, evading taxes, not paying full taxes, fraud, false statements, or not supplying correct information.

No tax penalty is given if written advice from an IRS official is wrong, but you need to show that you gave accurate tax info to the IRS when you asked the IRS for tax advice. If you can show that your mistake was an honest error, the IRS may drop the tax penalty. To show the IRS that your mistake was an honest error, send the IRS a check for payment of tax and interest, a letter explaining how the mistake was made, and a request to get rid of the penalty. Keep in mind, however, that it can be difficult to get tax penalties removed, especially without a tax professional at your side.

About Becky Schmitz

Becky Schmitz is the owner of Centsable Accounting - http://www.centsableaccounting.com - a tax problem resolution firm serving the entire U.S. Centsable Accounting provides an array of tax problem resolution services like help with tax penalties and filing late tax returns.