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

    Estimated Taxes Tripping Up More Filers

    If your working as an independent contractor, making sure you cover your bill for estimated taxes is important for avoiding a tax penalty.
  2. Taxes

    What To Do If You Filed Your Taxes Late

    What happens if you missed this year's April 17 deadline?
  3. Taxes

    Estimated Taxes: Back To Basics

    Will you owe estimated taxes for the year? Here are some rules that apply and tips on avoiding any associated penalties.
  4. Taxes

    Missed the Tax Return Deadline? Here's What to Do

    Most important: Do it now.
  5. Taxes

    Can't Pay Your Taxes? What to Do Now

    Not enough cash on hand for your April tax bill? No need to panic. Here's what to do.
  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

    Trump Changes Obamacare Income Tax Policy

    Don't disclose health insurance? The IRS will now accept your tax form. But watch for penalties.
  9. 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.
Frequently Asked Questions
  1. Why Do Most of My Mortgage Payments Start Out as Interest?

    Fear not: Over the life of the mortgage, the portions of interest to principal will change.
  2. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  3. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  4. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
Trading Center