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Resources:
Tax Education: Penalties
The IRS now collects
over 6 billion (billion, not million) dollars a year from
penalties. Penalties
are a major source of federal funding.
Congress is addicted to IRS penalties.
There are five major
types of tax penalties. (1)
A 20% penalty is added if your return understated your income
tax liability. (2)
A 75% penalty is added if the IRS determines that you
fraudulently failed to file a tax return, 15% a month up to five
months. (3) A 1/4%
to 1% penalty per month is added if you failed to pay on time,
up to a maximum of 22.5%. (4)
A 25% penalty is added if your return was filed late, 5% per
month up to five months.
Don’t forget that
interest accrues on unpaid taxes, unpaid penalties, and unpaid
interest! Borrowing
money from the IRS by not paying on time is a great way to
spiral into poverty because of the interest and penalties.
Penalties
can be reduced by the IRS, which is called abatement.
Interest generally cannot be abated, with limited
exceptions.
Penalties
can be abated for reasonable cause.
Reasonable cause is not precisely defined.
The Internal Revenue Manual references the following
items as constituting reasonable cause:
1.
Death or serious illness.
2.
Unavoidable absence of the taxpayer.
3.
Destruction by fire or other casualty of the taxpayer’s
records or place of business.
4.
For employment taxes, the taxpayer was unable to
determine the amount of tax deposit due for reasons beyond the
taxpayer’s control.
5.
The taxpayer’s ability to make deposits or payments was
materially impaired by civil disturbances.
6.
Lack of funds when the taxpayer can demonstrate that it
occurred despite the exercise of ordinary business care and
prudence.
7.
Other explanations where the taxpayer exercised ordinary
care and prudence but nevertheless was frustrated from complying
with payment obligations.
For more
information contact us at taxhelp@taxdefendant.com
or
Toll Free 866-216-1930
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