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:
- 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.
- 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.
- Failure to Pay penalties - 0.5% per month up to 25%
- Failure to File penalties - 5% per month up to 25%
- Fraud penalty - 15% per month up to 75% to any portion of the tax underpayment due to fraud
Sample Questions 1 - 6
TaxesIf you follow these methods for calculating estimated tax payments, you could minimize your chances of incurring penalties.
TaxesWhat happens if you missed this year's April 17 deadline?
TaxesNot enough cash on hand for your April tax bill? No need to panic. Here's what to do.
TaxesFill out this form to get a few more months to file your tax return. But remember, April 15 is still the payment due date if you owe taxes.
TaxesWhat are the worst tax filing mistakes people make? Tax expert and attorney Barbara E. Weltman points out 10 common ones – and how to steer clear of them.
TaxesThe process for filing a Canadian tax return is easy and streamlined. Here is the information you need to know before filing.
TaxesFinding out you owe when you expected a refund is a nasty shock. Find out how to cope.
TaxesWhen it comes to filing your taxes, it can often pay to wait until the deadline.
TaxesIf the IRS finds errors, it will cost you. Find out how to fix them, and how to prevent them in the first place.