IRS and Penalties

When you have not paid your taxes, the words IRS and penalties go hand in hand. When the IRS sends you a tax bill, it is usually accompanied by IRS tax penalties and interests. For the IRS, penalties and interests are two different things. We will discuss interest charged by the IRS in another section.

What are the penalties the IRS charges?

The IRS penalties are automatically added by the IRS computers or by the IRS personnel. IRS penalties are automatic whenever you file your taxes late or failed to file specific tax forms. Nowadays, IRS tax penalties account for a large chunk of IRS budget. However, there is a way out of the IRS penalties. You can prove to the IRS whenever penalties are assessed to your tax account that you have shown 'reasonable cause'. Reasonable cause will be discussed in another section of this IRS audit help website.

Some IRS penalties classifications

Below are some penalties you can face when dealing with the IRS.

Accuracy penalties

The IRS can add a 20% penalty to your tax bill if after an IRS audit, the IRS auditor finds understated income on your tax return filings.

Fraud penalties

The IRS takes fraud penalties very seriously. If after an IRS audit, you are found to have fraudulently misstated any tax items, then the IRS can add 75% tax penalty on the unreported amount as fraud penalty.

Failure to pay taxes penalties

Failure to pay taxes penalties are about ¼% to 1% per month of the tax amount you failed to pay.

Late filing of tax return penalties

If you file your tax return late, the IRS can impose a 5% tax penalty per month of the tax balance you have not paid. So, if you cannot afford to pay your tax bills, it is better to file a tax return and not pay taxes rather than not file at all. The IRS tax penalty for failure to file is more hefty than failure to pay.