Common IRS Penalties
The IRS issues penalties to “encourage” people to be compliant with their taxes. People are compliant when they respond to the IRS in a timely manner and complete all necessary forms.
150 penalties are a lot of penalties to explain and identify. In this blog, we’ll go through the most common penalties and how to either reduce or eliminate them completely.
If you feel your circumstances are unique, give us a call! We can review your tax situation and give professional advice.
The ones listed below make up at least 70% of total penalties that the IRS issues each year.
Failure to Pay
Failure to pay is when you fail to pay your taxes displayed on your tax return. There are several reasons that you may have missed a payment– low income, natural disaster, missing certain paperwork, out of the country, or your health.
The rate on the failure to pay penalty is 0.5% of your unpaid taxes per month.
The rate increases to 1 percent per month for any tax that remains unpaid the day after the IRS requests an immediate payment. It may also increase 10 days after a notice of intent to levy assets is issued.
This penalty accrues from the time the IRS demands payment and will continue to accrue until the tax is paid in full. The max penalty rate is 25% per month.
Failure to File
The IRS calculates the penalty based on how late you filed your tax return and the amount of unpaid taxes. The penalty is 5% of your unpaid taxes for each month or part of a month that a tax return is late. The penalty won’t exceed 25% of your unpaid taxes.
You may receive both the failure to file and failure to pay penalty, which if that is the case, then the penalties combined add up to 5% for each month or part of a month the tax return was late.
First Time Penalty Abatement
The first time penalty abatement, FTA, is a godsend to those who are otherwise compliant with their taxes.
Eligibility
- You didn’t have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
- You filed all currently required returns or filed an extension of time to file.
- You have paid, or arranged to pay, any tax due.
The FTA has been available to taxpayers for over 20 years, but so few of them know of the abatement. A report shows that in 2019, only 11% of 40 million civil penalties were abated. That’s 4.4 million penalties that could have been reduced or completely eliminated through the program.
If this is your first time receiving a penalty on your taxes then a tax professional should be the first call you make. America’s Choice Tax will review your taxes and speak with the IRS for you to make sure that the penalty abatement runs smoothly.
Reasonable Cause Abatement
Even if this isn’t your first time receiving a penalty, you may still qualify for a Reasonable Cause Penalty Abatement.
Qualifications
- Natural disasters
- Inability to obtain records
- Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
- Another reason which establishes that you used all ordinary business care and prudence to meet your federal tax obligations but were nevertheless unable to do.
- Incorrect advice was given by IRS
You can apply the reasonable cause abatement to nearly all penalties. The IRS considers your circumstances or earnest effort to file and pay correctly on time.
Prove You’re Qualified with a Tax Professional
Filing for any penalty abatements requires quick action, free time to stay on hold with the IRS, and the ability to negotiate with the IRS so they don’t take advantage of your circumstances. Any specific action could disqualify you from a penalty abatement that you would otherwise be qualified for.
A tax professional has your best interest at heart and can mediate with the IRS on your behalf. We understand the IRS codes and methods of assessment to prove to them you deserve penalty relief. Remove your penalty fees with an America’s Choice Tax professional.