Underestimate and late payment penalties
Taxpayers are required to have withholding of tax or make quarterly estimated tax payments before the end of the tax year. Because accurate estimation requires accurate prediction of the future, taxpayers sometimes underestimate the amount due. The penalty for paying too little estimated tax or having too little tax withheld is computed with interest on the amount that should have been, but was not, paid. Where a taxpayer has filed an income or excise tax return that shows a balance due but does not pay that balance by the due date of the return (without extensions), a different charge applies. This charge has two components: an interest charge, computed as described above, and second a penalty of 0.5% per month applied to the unpaid balance of tax and interest. The 0.5% penalty is capped at 25% of the total unpaid tax. The underestimate penalty and interest on late payment are automatically assessed.Penalties for failure to timely file returns or timely pay tax
Penalty for Failure to Timely File Return: If a taxpayer is required to file an income or excise tax return and fails to timely do so, a late filing penalty may be assessed. The penalty is 5% of the amount of unpaid tax per month (or partial month) the return is late, up to a maximum of 25%. A minimum penalty of $435 may apply for returns over 60 days late. The minimum penalty is the lesser of $435 or 100% of the tax due on the return. Penalty for Failure to Timely Pay Tax: If a taxpayer fails to pay the balance due shown on the tax return by the due date (even if the reason of nonpayment is a bounced check), there is a penalty of 0.5% of the amount of unpaid tax per month (or partial month), up to a maximum of 25%. Penalty for Failure to Timely Pay After Issuance of Notice: If a taxpayer fails to pay any additional tax assessed by the IRS (usually as a result of an audit which can be avoided) the taxpayer may be liable for a penalty equal to 0.5% for each month (or partial month) during which the failure continues, if the amount is not paid within 21 calendar days after the date of an IRS notice demanding the payment. If both the failure to file and the failure to pay penalties apply during the same month, then the failure to file penalty is reduced by 0.5% each month. The 25% cap above applies to the 5% late filing penalty and the 0.5% late payment penalty together. The late filing penalty may be waived or abated on showing of reasonable cause for failure. The failure to file penalty is imposed and starts to accrue interest from the due date of the return. The failure to pay penalty is imposed when a taxpayer pays the taxes after payment was due, computed from the date prescribed for paying the tax. The Internal Revenue Service advises that if the taxpayer wants to compute the penalty for failure to timely file and the penalty for failure to timely pay the tax shown on the return, or the interest, and to pay those items at the time the return is filed, the taxpayer can "identify and enter the amount in the bottom margin" on the second page of Form 1040. The IRS advises that the taxpayer "not include interest or penalties (other than the estimated tax penalty)" in the "Amount Owed" line of the form.Accuracy related penalties
If amounts reported on an income tax return are later adjusted by the IRS and a tax increase results, an additional penalty may apply. This penalty of 20% or 40% of the increase in tax is due in the case of substantial understatement of tax, substantial valuation misstatements,Penalties in connection with information returns
Certain types of returns, called "information returns," do not require payment of tax. These include forms filed by employers to report wages100% penalty on unpaid withholding taxes
Employers are required to withhold income and social security taxes from wages paid to employees, and to pay these amounts promptly to the government. A penalty of 100% of the amount not paid over (plus liability for paying the withheld amounts) may be collected without judicial proceedings from each and every person who had custody and control of the funds and did not make the payment to the government. This applies to company employees and officers as individuals, as well as to companies themselves. There have been reported cases of the IRS seizing houses of those failing to pay over employee taxes.Penalties for failure to provide foreign information
Taxpayers who are shareholders of controlled foreign corporations must filExcise taxes as penalties
Federal excise taxes are imposed on a variety of goods and services. Some of these taxes require purchase of tax stamps or other evidence of advance payment of tax. Some require collection of the tax by retailers. An assortment of penalties apply to manufacturers and retailers not complying with the particular rules. In addition, certain penalties are imposed in the form of an excise tax. Pension and benefit plans must pay a tax for a variety of failures. Charities and private foundations must pay an excise tax on prohibited transactions and other failures.Tax fraud penalties
Intentional filing of materially false tax returns is a criminal offence. A person convicted of committing tax fraud, or aiding and abetting another in committing tax fraud, may be subject to forfeiture of property and/or jail time. Conviction and sentencing is through the court system. Responsibility for prosecution falls to the U.S. Department of Justice, not the Internal Revenue Service. Penalties may be assessed againstTax adviser penalties
Penalties also apply to people who promote tax shelters or who fail to maintain and disclose lists of reportable transactions their customers or clients for those transactions. These monetary penalties can be severe.Judicial appeal of penalties
Most penalties are subject to judicial review.See the discussions in IRFurther reading
*Meldman, Robert E., ''Federal Taxation Practice and Procedure'', , Chapters 9 and 18 *Shafiroff, Ira L., ''Internal Revenue Service Practice and Procedure Deskbook'', Kindle edition (no ISBN), or hardcover *Pratt, Kulsrud, ''et al'', ''Federal Taxation'', 2006 Edition , pages 2–6 through 2–15. *Willis, Hoffman, ''et al'', ''South-Western Federal Taxation'', 2009 Edition , pages 26–13 through 26–19.References
{{DEFAULTSORT:Irs Penalties Internal Revenue Service Tax evasion in the United States