There are various penalties that can be levied against taxpayers in the United States for failures related to their tax matters. Those penalties are imposed by the Internal Revenue Service (IRS), which has the authority to assert them based on Federal tax laws. The most common penalty that a taxpayer can face is a failure to file a tax return.
Fortunately, there are ways to reduce the penalty you will be assessed. For example, if you’re able to file your tax return on time, your penalty will be reduced by about one-fourth. If you’re able to enroll in an installment agreement, you can also get the penalty waived.
However, if you file a tax return that is considered to be frivolous, you will probably end up paying more than you should in tax debt. Frivolous tax return penalties can exceed $25,000 if a tax court decides that you filed a false return. Furthermore, if you didn’t receive notice from the IRS, they may not assess a penalty on your tax, which could potentially cost you thousands of dollars.
If you’re not able to file on time, you may be entitled to automatic penalty relief for late 2019 or 2020 personal or business tax returns. This means you don’t need to apply for penalty relief – your assessed penalties will be reduced and your payment will be credited. Alternatively, you can file and pay your tax return on time and request an installment agreement. However, if you believe you will be receiving a refund, you don’t need to pay anything – the IRS will just accept your return and refund the money to you.
In rare cases, the IRS can pursue criminal penalties against noncompliant taxpayers. These penalties can include jail time and heft fines. According to the IRS, 85% of taxpayers who were prosecuted in 2013 were sentenced to jail, with an average sentence of 48 months. This is a serious penalty and it should only be pursued when a taxpayer can’t pay their taxes on time.
The penalties for failing to file a return may range from a few hundred dollars to several thousand dollars. In this case, the penalty in this case was $5,000. The taxpayer did not file any returns for years 2003-2016, but claimed a refund for 2003. During this period, the IRS issued a notice of deficiency, and he filed an appeal.
In most cases, if you fail to file your tax return by the deadline, you’ll face a failure-to-pay penalty. This penalty is not as severe as the failure-to-file penalty, and it can’t exceed 25 percent of the total amount you owe the IRS. In addition to the penalties, you’ll also face interest if you fail to file your return.
Generally, if you’ve made an honest mistake, you’ll avoid paying a penalty. Oftentimes, it’s enough to admit your mistake and work your way out of the mistake. By cooperating with the investigation, you’ll limit the damage of your mistake.
