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Tax Penalties

If you're facing tax penalties like the Failure-to-Pay Penalty, you need to know the best way to tackle the situation.

What Causes Tax Penalties?

The Failure-to-File penalty is five percent of the tax due at the deadline, reduced by the Failure-to-Pay penalty amount for each month in which both penalties apply.

This dollar amount is charged every month, even if the return is filed less than 30 days late. The IRS explains further, saying “If any unpaid tax was required to be reported, a minimum penalty applies to income tax returns received 60 or more days late.” The minimum penalty is the lesser of the unpaid tax or a fixed rate, which depends on the year that the filing was due.

The Failure-to-Pay penalty is calculated differently: .5 percent of tax due on the deadline is imposed, however, it can decrease to .25 if the return was filed on time and the taxpayer is an individual.

If the tax isn’t paid within ten days of receiving a levy notice, the penalty increases to one percent. In addition, this penalty will be incurred repeatedly on a monthly basis, until the debt is paid off or until the penalty reaches 25 percent.

The Failure-to-Pay penalty is also imposed on tax that wasn’t reported on your original return. If this unreported tax isn’t paid in full within 21 days of the date on your notice, the IRS will impose a fine of:

  • .5 percent of unpaid tax on the due date printed on the notice
  • .25 percent during a mutually approved installment agreement if an individual taxpayer filed by the deadline, or
  • one percent if the tax isn’t paid within 10 days of the notice of intent to levy.

This penalty is also a recurring charge until the debt is fully paid. Taxpayers with back-tax debt over $100,000 are given 10 days to pay in full. These significant penalties often make it more challenging to pay off back-tax debt. The good news is; you may have other options.re-to-File and Failure-to-Pay penalties. A Failure-to-File penalty is imposed if the taxpayer doesn’t file their return by the annual tax deadline. The deadline may be the standard tax due date, which is on or around April 15 every year, or a later date if an extension was requested and approved by the IRS.

A Failure-to-Pay penalty is imposed if the taxpayer doesn’t pay their total tax debt by the deadline. It’s important to differentiate these actions; regardless of the date on which you file your tax return, the IRS expects you to pay your taxes by your deadline. In other words: while filing extensions may be available for some taxpayers, no payment extensions are offered by the IRS.

How does the IRS calculate penalties

The Failure-to-File penalty is five percent of the tax due at the deadline, reduced by the Failure-to-Pay penalty amount for each month in which both penalties apply.

This dollar amount is charged every month, even if the return is filed less than 30 days late. The IRS explains further, saying “If any unpaid tax was required to be reported, a minimum penalty applies to income tax returns received 60 or more days late.” The minimum penalty is the lesser of the unpaid tax or a fixed rate, which depends on the year that the filing was due.

The Failure-to-Pay penalty is calculated differently: .5 percent of tax due on the deadline is imposed, however, it can decrease to .25 if the return was filed on time and the taxpayer is an individual.

If the tax isn’t paid within ten days of receiving a levy notice, the penalty increases to one percent. In addition, this penalty will be incurred repeatedly on a monthly basis, until the debt is paid off or until the penalty reaches 25 percent.

The Failure-to-Pay penalty is also imposed on tax that wasn’t reported on your original return. If this unreported tax isn’t paid in full within 21 days of the date on your notice, the IRS will impose a fine of:

  • .5 percent of unpaid tax on the due date printed on the notice
  • .25 percent during a mutually approved installment agreement if an individual taxpayer filed by the deadline, or
  • one percent if the tax isn’t paid within 10 days of the notice of intent to levy.

This penalty is also a recurring charge until the debt is fully paid. Taxpayers with back-tax debt over $100,000 are given 10 days to pay in full. These significant penalties often make it more challenging to pay off back-tax debt. The good news is; you may have other options.

Tax Penalty Relief Options

The IRS offers several programs and waivers for eligible taxpayers that can significantly reduce or dissolve these penalties. Consult a tax relief professional to determine the best strategy for reducing your tax debt and establishing an affordable installment agreement that will halt current and future collection efforts.

The staff at Tax Champions has over 35 years of experience in negotiating the lowest balance on the program that’s right for you. Give us a call today for an informational discussion about your circumstances. By the end of the call, you’ll have a better idea of what options you have, as well as what it’ll take to get you back into compliance with the IRS.

We’re on your side and we strive to make the process as easy as possible. We’re available evenings and weekends in addition to standard business hours for your convenience. We look forward to hearing from you.

A Word About Tax Penalties and Penalty Abatement

Penalties are imposed on taxpayers who don’t pay their entire tax bill on time. In a perfect world, no one would find themselves in the position of having to pay extra at tax time. Since we don’t live in a perfect world just yet, the IRS extends a level of forgiveness that allows for unforeseen circumstances.

Talk to a tax professional about the obstacles you experienced that kept you from paying your tax bill on time. After gaining a thorough understanding of your challenges, he or she will determine your potential eligibility for a penalty abatement.

A penalty abatement reduces or removes the penalty imposed from your back-tax debt if you qualify. Several factors may apply to program requirements so be sure to disclose all detailed information to your tax professional to maximize his or her opportunity to achieve an abatement on your account. Many abatements may be applied as a one-time courtesy and are determined by the negotiations between you, or a tax representative on your behalf and the IRS agent.

Sources 

[1] Collection Procedural Questions 3. (2019, March 8). Retrieved from //www.irs.gov/faqs/irs-procedures/collection-procedural-questions/collection-procedural-questions-3

[2] Understanding Penalties and Interest. (2019, March 28). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/understanding-penalties-and-interest

 

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Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman, CPA is the author of "Tax Champions Guide to Tax Resolution." Amazon #1 Best Seller in the Personal Finance category. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.
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