Finding out you are being audited by the IRS or that you owe a tax debt can be intimidating. It is only natural to want to ignore the problem and hope that it goes away on its own. However, the worst thing you can do if you find yourself in trouble with the IRS is ignore the problem. Ignoring tax noncompliance can lead to severe consequences that will only worsen over time.
Common Tax Penalties and Fees
While these are not all the tax penalties you may accrue, there are several tax penalties that you can easily find yourself on the receiving end of. These penalties can range from a few hundred dollars to several thousand and most only continue to increase the longer you put off taking care of your tax issues.
Failure to File
Failure to file is, perhaps, one of the most common tax penalties. This is the fee that you are required to pay if you are late filing your taxes or if you forget to file at all. Tax season can feel like it goes by in a second. When life is at its busiest it can be very easy to procrastinate something as mundane as filing your taxes, but it is important to make sure that you file before the deadline or you can open yourself up to fines and penalties.
This year, for example, taxes are due by April 18, 2023. If you think that you might miss that deadline you can be granted an extension upon request. This gives you until October to file. Extensions are common and can help buy you months of time if you are struggling with getting all of your assets together.
If you fail to file your tax return by the final due date given, whether you requested an extension or are going by the public due date, you may be subject to a failure to file penalty. This penalty is usually assessed at a rate of 5% per month on the unpaid tax balance, up to a maximum of 25% of the total amount owed. This gives individual taxpayers who will be receiving a tax refund a bit more wiggle room in filing taxes, but you should still ensure that all deadlines are met to stay tax compliant and avoid forfeiting part or all of your annual tax refund.
The best thing to do if you receive a letter saying that you are being fined for not filing your taxes is to file your tax return immediately or contact a tax professional to help you communicate with the IRS if you are unable to file your taxes for one reason or another.
Failure to Pay
If you fail to pay your taxes by the due date, you may be subject to a failure to pay penalty. This penalty is usually charged at .5% per month on the unpaid tax balance, up to a maximum of 25% of the total amount owed. This is one of the lower penalties but it can add up fast.
Even if you are not able to pay your fine in full at the time, you can request a payment plan or a delay. This is where legal representation can come in handy. Having a tax attorney on your side can help with difficult communication and ensure that you are not accruing additional fines while waiting for a response from the IRS regarding your case.
Accuracy-Related Penalty
You could find yourself on the wrong end of an accuracy-related tax penalty if you fail to report any aspect of your annual earnings, under report your income, or fail to report your assets or investment earnings. It is important to always report your income as accurately as possible, regardless of the expected outcome. If you suspect that you will end up owing the IRS more money than you can pay, there are payment options in place to make sure that you are still able to support yourself and your family while staying tax compliant. Under reporting can lead to serious consequences, including jail time if you are found guilty of purposeful tax evasion.
Besides the potential legal ramifications, the fines alone can add up to be quite a lot of money. If you are subject to an accuracy-related penalty, this penalty is usually assessed at a rate of 20% of the underpayment. Depending on how much the underpayment is, 20% can be a hefty sum to pay.
Late Payment Penalty
While it is always best to pay your taxes on time, we know that life gets in the way sometimes. Unfortunately, there is a penalty for late payments even if you are able to pay what you owe in full and are only a few days or weeks, you will likely still have to pay a penalty.
If you fail to make an estimated tax payment by the due date, you may be subject to a late payment penalty. This penalty is usually assessed at a rate of 0.5% per month on the unpaid balance, up to a maximum of 25% of the total amount owed.
Interest
In addition to penalties, you may also be subject to interest on any unpaid taxes. The interest rate is determined by the IRS and is currently 3% per year.
It is important to keep in mind that these penalties and fees can add up quickly and make it even more difficult to pay your tax debt. If you are facing tax problems, it’s important to seek help from a tax professional to understand your options for resolving the issue.
Resolution Options
The good news is that there is always a solution to whatever tax problem you find yourself stuck in. If you owe money to the IRS but cannot afford to pay it in full you can apply for either an Offer in Compromise or an Installment Plan to help you get back on your feet and also pay your IRS debt.
Offer in Compromise
A tax settlement, or an Offer in Compromise (OIC) is an agreement between a taxpayer and the IRS to settle a tax debt for less than the full amount owed. Under an OIC the taxpayer agrees to pay a reduced amount of the tax debt in exchange for the IRS forgiving the remaining debt.
To qualify for an OIC, the IRS requires the taxpayer to provide detailed financial information and supporting documentation to demonstrate that paying the full amount of the tax debt would create an economic hardship. The application must include detailed financial information and supporting documentation to demonstrate that the taxpayer cannot pay the full amount of the tax debt.
It’s important to note that not all taxpayers are eligible for a tax settlement, and even if a taxpayer is eligible, there is no guarantee that the IRS will accept the settlement offer. It’s recommended to work with a reputable tax professional, such as a tax attorney or a certified public accountant (CPA), to determine if a tax settlement is a viable option and to assist with the application process.
Installment Plan
An installment plan, also known as a payment agreement, is a payment plan that allows taxpayers to pay their tax debt over time in regular, manageable installments. Under a tax installment plan, a person agrees to make monthly payments to the IRS until the tax debt is fully paid. The amount of each monthly payment can vary greatly depending on a variety of factors. These payments may be based on a combination of external factors such as the total amount owed, the taxpayer’s ability to pay, history of payment, and the length of the payment plan.
To qualify for a tax payment plan, you must owe less than $50,000 in tax debt, including interest and penalties, and be current on all tax filings. You must also agree to comply with all tax laws and pay the full amount owed, including interest and penalties, by the end of the payment plan.
Consult a Tax Resolution Attorney
By now you have likely realized that the IRS can be very intimidating and aggressive to the average taxpayer. Not to worry, though. That is what tax attorneys like Steven Klitzner are here for. At the Law Office of Steven Klitzner, we strive to take on that stress for you. We deal directly with the IRS on your behalf so that you no longer have to deal with harassing phone calls and letters from the IRS. When you put your case in the hands of our team, you can rest easy knowing that your tax problems are being handled by Miami’s premier tax resolution attorney.
As an experienced tax attorney, Steven Klitzner and his dedicated team deal with the IRS on a regular basis and have the knowledge and experience to advise you of options for resolving your tax problems.
The Law Office of Steven Klitzner
IRS problems do not go away unless they are dealt with. In fact, they only get worse the longer you wait. To avoid any penalties or additional interest, give Steven Klitzner a call or reach out online today to get back on the path of IRS compliance!
Steven N. Klitzner, P.A. is a tax attorney based in Miami, Florida. He has been practicing tax law for over 40 years, and currently holds a 10.0 rating by Avvo. Mr. Klitzner was appointed to the IRS Service Advisory Council in 2021 and is... 
