In addition to recovering back taxes and interest, the IRS imposes various civil tax penalties when a taxpayer fails to file a tax return, neglects to pay taxes when owed, or otherwise violates internal revenue rules and regulations. Penalties are normally due and payable upon notice and demand. Listed below are some of the civil penalties commonly imposed by the IRS:
Failure to File
A taxpayer who fails to file a tax return by the due date is subject to a penalty of 5% of the tax due on the return for each month the tax return is late. Returns filed more than 60 days after the due date are subject to a minimum penalty of $100 or 100% of the tax due, whichever is less.
Failure to Pay
A failure-to-pay penalty is assessed based on the amount of taxes owed. The penalty is 0.5% for each month the tax is not paid in full, increasing to 1% per month upon issuance of a demand for immediate payment.
Completing a tax return with inadequate or substantially incorrect information or information based on a frivolous position can result in a frivolous return penalty of $5,000.
A taxpayer who fails to make a reasonable attempt to comply with the tax laws, keep adequate books and records, or exercise ordinary and reasonable care when preparing a tax return may be required to pay a negligence penalty.
Substantial Understatement and Fraudulent Underpayment
Understating taxes by more than 10% of the correct amount or $5,000 may subject a taxpayer to a penalty of 20% of the amount of taxes understated in the return. A taxpayer who files a fraudulent return or other tax document is subject to a penalty of 75% of the underpayment due to the fraud.
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