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Tax Defense Network


Tax Defense Network

IRS Tax Penalties

The Penalty for Late Filing, Payment, and Accuracy

If you filed your taxes incorrectly or late, you may be subject to penalties imposed by the IRS. Here are a few of the various consequences and how you can handle them.

Penalty for late filing: If you file your return after the due date, you’ll have a penalty that accrues at five percent per month (not to exceed 25 percent).

Penalty for late payment: Late payment begins to accrue at 0.5 percent per month. If the tax remains unpaid after you receive notice and demand for payment, this penalty will increase to one percent per month (not to exceed 25 percent).

Accuracy-related penalty: If the IRS discovers inaccuracies in your return that leads to an increase in your tax liability, you’ll receive a hefty 20 percent penalty.

The cost of failure to file: The penalty for not filing tax returns can be financially burdensome. The IRS assesses not only a punitive charge but adds interest for failure to file tax returns, which accrues on any liability not paid by the filing deadline. These charges are difficult to get removed and can quickly inflate the total debt you owe.

If you don’t file a return, you haven’t got away with anything yet – the IRS can file for you through a Substitute for Return (SFR) in addition to charges.

Consequences Beyond Monetary Fees:

A severe but possible penalty if you fail to file tax returns is imprisonment for each year that is unfiled.

What to Do to Avoid Tax Penalties:

  • Many Americans have been there – things get busy and you run a little behind on submitting your return. If you’re unable to file your return by the April deadline, you can file for an extension.
  • If you filed on time but are unable to pay, you can apply for IRS payment plans like an installment agreement can help reduce your penalty.
  • Think you made mistakes in your filed return? Amend it ASAP to avoid the 20 percent accuracy-related penalty.
  • When aggressive IRS collections have begun or you have several years that are unfiled, it’s time to seek professional help from a licensed tax professional to negotiate with the IRS on your behalf.

Penalty Abatement

Tax debt can be an unwelcome and overwhelming financial strain, often leading to sleepless nights and worries about what the IRS will do next. One option to mitigate the financial strain is to submit a penalty abatement form (Form 843 Claim for Refund and Request for Abatement), which can reduce your liability if approved.

Filing a Penalty Abatement Form 843

  • First-time Abatement: Taxpayers with a good compliance history may qualify for a one-time abatement of late filing and late payment penalties. The IRS will look at the prior three years, and if there are no instances of late payment or late filing, abatement may be granted. Accuracy-related penalties do not qualify for this type of abatement.
  • Reasonable Cause Abatement: Life happens. The IRS will consider forgiving late payment, late filing, and accuracy-related penalties based on reasonable cause. So, you’ll have to explain what circumstances led to the late filing, payment, or inaccuracy of your return (and there’s a high standard).
  • Even with abatement, interest attributable to the unpaid debt will remain.
  • An abatement will not grant you credit or a modification to the tax debt. Check with a tax professional to see if you qualify for a settlement offer such as an Offer in Compromise.

Don’t ignore your tax issues before it’s too late. Contact Tax Defense Network for a no-cost, confidential consultation and to start your journey to tax debt resolution.

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