IRS Tax Penalties | Estimated Tax Penalties

IRS tax penalties and interest charges can cause emotional distress and financial hardship. But make sure that before you attempt to tackle the issue, you understand exactly why these penalties were imposed and what your legal options are to get them removed or settled.

Late filing penalties are one of the penalties that cause taxpayers a great deal of concern. They amount to 5% of the unpaid tax balance for each month or part of a month. The maximum late filing penalty is 25% of the assessed tax.

Failure to pay penalties are 0.5% of the initial tax bill. These penalties are also capped at 25%. Should you ever find yourself in a situation where you cannot afford to pay your tax bill at least you need to file your return.

Taxpayers are often amazed (and of course disappointed) when they file their returns 6 months or so late and find out that their penalties and interest amount to 30-40% of the initial tax bill! This is what can put taxpayers into a financial mess that is hard to get out of.

Abatement of IRS penalties can occur, but only if the taxpayer can show reasonable cause. Reasonable cause for late filing includes: (1) the death or serious illness of the taxpayer or an immediate family member of the taxpayer; (2) the unavoidable absence of the taxpayer on the filing date; or (3) the destruction of the taxpayers business or personal residence.

The IRS can abate interest charges only in certain situations. These include situations in which there was an unreasonable error or delay by IRS employees or if the late payment occurred in an area that was a presidentially declared disaster area.

With more and more Americans facing IRS penalties and interest charges, people need to make sure that they are educated on the topic. If you find yourself falling behind with the IRS, do everything in your power to get caught up. They wont go away unless you address the issue head on.

Fraud – IRC Section 6663

We charged a penalty for fraud. The penalty is 75% of the tax you didn’t pay due to fraud (50% of the tax you didn’t pay due to fraud on returns required to be filed before January 1, 1987, not including extensions).

For tax you didn’t pay due to fraud on returns required to be filed before January 1, 1989, the penalty includes an additional 50% of the interest charged on the part of your underpayment due to fraud. This additional interest charge is a penalty and you can’t deduct it from your federal taxes.

Negligence Penalty – IRC Section 6662(c)

We charged a penalty of 5% on your unpaid tax. For underpayments on returns due before January 1, 1989, not including extensions, we charge an additional 50% of the interest on the part of your underpayment due to negligence. This additional interest charge is a penalty and you can’t deduct it from your federal taxes.

Penalty for Paying Taxes Late – IRC Section 6651

We charged a penalty because you paid your taxes late. We count part of a month as a full month.  If you disagree with this penalty, see “Removal of Penalties” in this notice.  To avoid this penalty in the future, you should pay your taxes by the due date.  Even if you have an extension to file your tax return, you do not have additional time to pay your tax.