An Overview of IRS Tax Penalties

  • Apr 15 2017

When tax time rolls around, it’s important to approach the completion and submission of your tax return with the utmost care, as the IRS has the authority to penalize taxpayers for a variety of reasons. If not handled appropriately, these penalties can accumulate, making it extremely difficult to meet one’s tax obligations. Below is a brief overview of the penalties associated with failing to comply with federal taxation requirements.

1) Filing late: Filing late is one of the most common reasons that taxpayers are penalized. This penalty typically amounts to 5% of the total amount owed for each month (or part of a month) that a return is late, up to a maximum of 25%. Also, if a return is late by over 60 days, the minimum penalty is the lesser of the total tax owed or $205.

2) Paying less than the total amount due:  When a taxpayer pays less than his or her total tax obligation by the due date, a penalty of 1/2 of 1% of the tax owed is charged for each month (or part of a month) that the tax remains unpaid. Monthly charges accumulate until the tax is paid in full or a 25% maximum penalty is reached.

3) Filing late AND paying less than the total amount due: If the above penalties both apply in the same month, the maximum amount that may be charged for each penalty is 5%.

4) Filing a frivolous tax return: If a frivolous tax return is filed, the IRS has the authority to assess a penalty of $5,000 against the taxpayer. A frivolous tax return is a return that either doesn’t include enough information to calculate the appropriate tax or contains information demonstrating that the tax reported was substantially incorrect.

5) Errors: Erroneous tax returns, whether intentional or not, can result in penalties. A tax return is considered erroneous when a taxpayer’s income tax is substantially understated or the information reported demonstrates disregard of the tax laws. The penalty assessed for an erroneous tax return is 20% of the underpayment amount. However, penalties can be alleviated or waived if the taxpayer can provide a reasonable justification for the item in question or demonstrate substantial authority for the alleged error.

6) Civil Fraud: If the IRS can prove by clear and convincing evidence that any portion of a tax underpayment is fraudulent, a penalty of up to 75% of the total underpayment may be assessed.

Federal tax law is a complicated subject, and it can be difficult to navigate the process alone. If you’ve been penalized by the IRS for any of the above reasons, it’s imperative that you consult an experienced tax attorney in order to be fully apprised of your rights and options. Please contact us for a free consultation at (720) 897-1550 or (888) 694-2093 (toll-free).

Posted in: Tax Law