Tax Penalties & Interest: IRS Tax Penalty Details For Many Situations

The IRS charges civil penalties as a way to scare taxpayers into staying in compliance with their tax filings and tax payments. The IRS has both civil penalties and criminal penalties. In fact, there are over 140 different civil penalty provisions that the IRS uses. The IRS will also charge interest on any past due tax amount. There are various types of penalties that all vary in amount and they typically increase with the severity of the infraction. Below are the common IRS penalties that are charged.

Failure to Pay & Underpayment Tax Penalties & Interest

Out of all of the civil IRS penalties, this one is the least but can still add up to quite a bit over time. Typically if taxes are not paid on time or they are underpaid then there will be a penalty of 1/2% of the outstanding tax amount for each month that passes and will continue to accrue until it is a maximum of 25% of the total tax owed (penalty can be up to 1% if the tax remains unpaid for 10 days after an intent to levy is issued and can be as low as 1/4% if the taxpayer enters into an installment agreement).

IRS Failure to File Penalty: Penalties for Not Filing a Tax Return

The IRS considers not filing worse than not paying your taxes, for this reason, they have a much steeper civil penalty for unfiled tax returns. The penalty for a late filing is 5% per month on the total amount of taxes due to the IRS. This penalty can reach a maximum of 25% of the total amount of taxes owed and could be more than that if you add in the additional interest that will also be charged. However, the IRS cannot assess thie penalty until you file your taxes and the agency knows how much you owe. 

Tax Fraud Penalties for IRS or Federal Taxes

As a working resident of the United States, you are required by law to accurately and truthfully fill out a tax return each year to determine the amount of taxes that you owe. The IRS has harsh criminal and civil penalties for those individuals that do not follow the law and try to commit tax fraud. There are two types of civil fraud penalties given by the IRS. Tax fraud is the most severely punished and penalized civil tax infraction.

Accuracy Related Penalty for an Inaccurate Tax Return

The accuracy penalty is a common civil penalty that is used by the IRS and it is typically charged when the IRS audits a taxpayer. This penalty is assessed for various reasons, such as a major understatement of income tax, negligence or intentional disregard of IRS rules and regulations, substantial valuation misstatement, substantial overstatement of pension liabilities, or a substantial estate or gift tax valuation understatement. The accuracy penalty that is typically imposed is 20%.

Criminal Tax Penalties & Charges

Besides civil penalties, US taxpayers can face criminal penalties and consequences if convicted. If you are audited, your auditor could report you to the Internal Revenue Service Criminal Investigation Division, where you will be brought to trial. Find out the most common IRS criminal penalties, their fines, and potential incarceration time frames.

Penalties and Jail Time for Tax Evasion

Tax evasion is one type of tax fraud, and if you are found guilty, you can face up to five years in prison for each count of evasion. Often, when people are convicted of tax crimes, they face charges for evasion as well as another type of fraud, conspiracy to commit fraud, or related financial crimes such as money wire fraud or healthcare fraud.

Penalties for Making Voluntary Disclosures

If you have committed a tax-related crime, you may be able to avoid the criminal penalties noted above by making a timely voluntary disclosure. This program is for people who have unreported foreign bank accounts, certain types of foresign assets, unreported crypto, estate/gift tax issues, payroll tax issues, and some other types of unreported income. If the IRS accepts your disclosure, you won't face criminal charges, but you will incur a penalty which is typically the civil fraud penalty. 

Tax Preparer Penalties

Tax preparers can incur penalties for a wide range of issues. There are moderate penalties for relatively small issues, such as not providing a taxpayer with a copy of their return, but there are much more serious penalties for acts such as preparing a tax return with a material understatement of the tax liability. There are both civil and criminal penalties, and preparers can even face jail time or lose their right to prepare tax returns.

IRS Audit Penalties: Penalty You Can Face After an Audit

Receiving an audit doesn’t mean you will get a penalty, but the IRS can charge penalties depending on what they find. Typically the IRS does find problems with a tax return during an audit and will assess more taxes owed and penalties. Understand the various penalties the IRS may charge following a tax audit.

Underpayment Penalty of Estimated Taxes

The IRS may charge underpayment penalties when you don’t pay enough taxes throughout the year.  These penalties can be a problem for independent contractors, a taxpayer who isn’t subject to tax withholding, or self-employed taxpayers. Understand the details of how this penalty works, how to use form 2210 to figure out the penalty, and how to avoid these penalties.

Penalty Abatement Service and Help

Have civil tax penalties that you want to be removed? Understand how penalty abatement service works and talk with a tax professional to determine if you can have your tax penalties removed. Start your search below by selecting the tax agency or agencies that you are having problems with and you can also select your specific problem and even a desired solution.