Penalties
There are several reasons that the IRS might implement tax penalties, they include: late payment, underpayment of tax, fraud, late filing, exaggerated deductions and overvaluation of property, just to name a few.

After a tax audit, the IRS agent will discuss the results and proposed changes with you (if any).


If you agree with the assessment and changes:
You will be asked to sign Form 870 which permits an immediate assessment of your deficiencies, plus any interest and penalties due (if required).

If you disagree with the assessment and changes:
You may ask for an immediate meeting with a supervisor (if at an IRS office) to address your side of the dispute, or you can wait for a formal deficiency letter from the IRS and request an appeals conference to further debate the issue.

Interest and Penalties:

  1. Interest - You may be charged interest by the IRS if you underpay the taxes due, this interest rate is the federal short-term rate plus 3%. Interest begins to accrue from the due date of the return. Interest is charged on taxes due for returns filed after April 15, even if an extension was granted.
  2. Accuracy-related penalties - 20% of underpayment - includes excessive claim of refund, understatement of tax liability, overvaluing property basis, negligence and most other known misrepresentations and omissions.
  3. Failure to Pay penalties - 0.5% per month up to 25%
  4. Failure to File penalties - 5% per month up to 25%
  5. Fraud penalty - 15% per month up to 75% to any portion of the tax underpayment due to fraud
Sample Questions 1 - 6

Related Articles
  1. Taxes

    Get a 6-Month Tax Extension

    Discover how to get some extra time from the IRS, without paying a hefty penalty for the privilege.
  2. Taxes

    7 Ways To Avoid Self-Employed Tax Penalties

    If you follow these methods for calculating estimated tax payments, you could minimize your chances of incurring penalties.
  3. Taxes

    4 Things to Know Before Filing Taxes This Year

    Keeping these four things in mind will help this tax season go more smoothly for you.
  4. Taxes

    What To Do If You Filed Your Taxes Late

    What happens if you missed this year's April 17 deadline?
  5. Retirement

    Retirement Plan Tax Form 5329: When To File

    Read this if you've taken early distributions or owe excess-contribution or excess-accumulation penalties.
  6. Retirement

    The Cost of Tapping Your Retirement Accounts Early

    It only makes sense in some situations to tap into retirement accounts early as a last resort.
  7. Taxes

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  8. Taxes

    Made a Mistake? How to File an Amended Tax Return

    You can always file an amended return. And the sooner you do it, the better.
  9. Taxes

    What Happens When You Can't Pay Your Taxes?

    Don't try to run from the tax man. Here are some tips that can help you out.
  10. Insurance

    Obamacare Penalty: What Actually Happens (& When)

    If you didn't have health insurance last year – or miss this year's deadline – how is the Affordable Care Act penalty enforced?
Frequently Asked Questions
  1. When are Beneficiaries of a Will Notified?

    Learn when the beneficiaries of a will must be notified, and understand how this requirement varies depending on whether ...
  2. Why Does Larry Page Pay Himself a $1 Salary?

    Google co-founder Larry Page continues to take an annual salary of only $1 as chief executive officer.
  3. What is Common Stock and Preferred Stock?

    Learn about the differences between common and preferred shares. Explore situations where preferred shares have more favorable ...
  4. Can CareCredit be Used for Family Members?

    Learn more about the available options that CareCredit offers to pay for out-of-pocket medical procedures with little to ...
Trading Center