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Getting on the wrong side of the IRS is a universal fear among Americans. The IRS has the power to inflict some pretty harsh penalties against you, and the smartest strategy is to keep good records, make sure your taxes are filed impeccably, and do whatever you can to stay off the radar. However, situations can arise where the IRS goes through your returns with a fine-toothed comb due to some type of error or red flag. Just what can the IRS do to penalize you? Take a look at some of the penalties and interest charges the IRS can inflict.
What Are IRS Penalties and Interest?
The IRS can bring penalties and interest against you if you fail to file your returns correctly, fail to file returns on time, or fail to pay taxes. Unfortunately, penalties can be exacerbated if you fail to reply to or comply with the IRS in time. Some unlucky taxpayers even get stuck with penalties and interest totals that are higher than the dollar amount of the back taxes that are owed. The bottom line is that penalties are bad news.
What Are the Different Types of IRS Penalties?
There are many different types of IRS penalties. What’s important to remember is that a penalty or interest charge is often far from a one-time occurrence. Penalties and interest totals can pile on month after month if the issue isn’t addressed. Here’s a rundown of the most common ones we see:
- A penalty for not filing
- A penalty for late filing
- A penalty for late tax payments
- A penalty for estimated late-payment taxes
- A penalty for underpayment of taxes
- A penalty for failing to pay a penalty
- Accuracy-related penalty
- IRS payroll penalty
There are some very important things to know about IRS penalties and interest if you’re concerned that an issue with your tax return could result in action by the IRS. You will actually find more than 150 types of penalties within the code of the IRS! Some penalties are minor, but others can leave taxpayers facing heavy fees, property seizures, and jail time.
Who Is Subjected to IRS Penalties or Interest?
Nobody escapes the IRS when it comes to penalties and interest. Both individuals and businesses have a lot to lose when it comes to penalties that are applied due to errors or the mishandling of returns. In fact, the IRS has the right to apply a penalty rate of 100 percent of the amount not paid in withholding taxes without any type of judicial proceedings. Of course, an individual can quickly become overwhelmed by penalties if the IRS finds fault with a return.
How to Avoid IRS Penalties or Interest
The easiest way to avoid IRS penalties or interest is to submit clean tax returns each year. The IRS is looking for things like a substantial understatement of tax, substantial misstatements of valuation, pricing adjustments, serious negligence, and a serious disregard for rules, laws, and regulations when auditing tax records. The reality is that you could be on the hook for a huge penalty simply because you misunderstood tax laws or made a math error.
Can Tax Penalties Be Waived?
The good news is that you may be able to have your penalties and interest removed or refunded if you can prove that you’ve done nothing wrong. However, you will need to be prepared to prove that there was a valid and significant reason for your failure to comply with the IRS’s requirements. You will need to go through the process of formally applying for IRS penalty abatement if you believe that your reason is valid.
What Is IRS Tax Penalty Abatement?
The IRS actually dismisses a significant chunk of all tax penalties issued each year through tax resolution. This is called penalty abatement. This means that taxpayers can petition to have assessed tax liabilities eliminated. A reasonable cause for abatement must be in play in order for you to qualify. Here’s a look at the matters that the IRS will typically accept as a reasonable cause:
- A death or illness in your family
- An error that was caused by an IRS employee
- A mailing mistake that involves using the wrong address or postage
- Destruction of files by a catastrophic event
- Death of a taxpayer
- Serious illness of a taxpayer
IRS penalty abatement could be your best bet if you need to resolve an IRS tax debt. The fact of the matter is that the IRS automatically adds penalties to a taxpayer’s debt without first diving in to consider the individual circumstances of a situation. That’s where the personal touch of a team of professionals who all speak the language of the IRS can turn matters around. The IRS is often more than willing to grant abatements when taxpayers apply correctly.
Why Tax Group Center Is the Top Choice When You Need Help Eliminating an IRS Penalty
The team at Tax Group Center has helped taxpayers deal with the IRS for 30 years. You’ll gain the expertise of licensed tax attorneys, CPAs, enrolled agents, and tax agents when you let us look into erasing IRS penalty and interest rates, as well as other tax issues that are creating a huge burden in your life.