Penalties & Interest

More often, it’s not the back taxes that are the real problem. It’s the penalties and interest that can accrue—these can become a serious problem for many people facing tax liability issues. Compounding over many years, these problematic penalties and interest can create a sky-high tax debt—sometimes even bigger than the initial amount owed. Ignoring the problem will only make it worse, so taking proactive steps is essential to avoid a potentially overwhelming tax burden.

When does the IRS impose penalties and interest?

There are various reasons why the IRS may charge you with penalties and interests, and these include:

• Underpaying
  The IRS has ways of determining who may have paid less than they were supposed to; in their eyes, this is an inexcusable offense, and the penalties can be significant—perhaps as high as 20% interest.
  
• Filing a Late Return
  There’s a good reason why we have the fixed date of April 15 for filing returns. If we didn’t, many more people would be paying late. You should know that even a one day delay could trigger the IRS penalty for late filing. You could be responsible for 5% to 25% interest levied as your penalty.
  
• Hiding Property and Gift Taxes
  Many people aren’t aware that monetary gifts need to be taxed. Of course, the same goes for property taxes; there’s no way of getting around this either. You definitely need to show this when filing your return. If you don’t, you could face a penalty of between 20% and 35%.
  
• Tax Fraud
  Any kind of purposeful tax deception can mean a penalty of up to 75%.
  

Most of these penalties and interest situations happen due to errors in filing returns and making the actual tax payments.  If you have any doubts when putting together your taxes, it’s best to get professional help so you have the best chance of success in removing the IRS penalties you have been assessed.

If unpaid, the potential consequences of not paying taxes, penalties, and interest include:

• Liens
• Passport Revocation
• Wage garnishment
• Property levies
• Asset seizure
• Jail time

What should you do if you are unable to pay your penalties?

The problem for most people with tax debt is that they wait too long or try to wish it away—all the while, it gets worse. For each month that you do not pay what you owe, your debt will be subject to penalties, and those penalties themselves incur interest.

If you are unable to settle your taxes and penalties in full, the best thing to do is to get professional help with what’s called “an abatement of penalties“, which requests the IRS to eliminate certain penalties on a taxpayer’s account.

When submitting “an abatement of penalties,” the taxpayer needs to have ‘reasonable cause’ and must be able to explain why the IRS should grant the penalties to be removed. While it’s not a forgiveness of the underlying tax debt, it provides a way for taxpayers to reduce or eliminate the penalties assessed against them under specific circumstances.

What types of penalties are eligible for relief?

Below are the types of penalties that you can request relief from:

• Information Return Penalty
  This penalty is imposed when taxpayers fail to file required information returns or furnish incorrect information.
  
• Failure to File Penalty
  This penalty is assessed when taxpayers fail to file their tax return by the due date, including extensions.
  
• Failure to Pay Penalty
  Taxpayers who fail to pay the taxes they owe by the filing deadline may incur this penalty.
  
• Accuracy-Related Penalty
  This penalty is imposed if there are inaccuracies or understatements on a tax return that result in underpayment of taxes.
  
• Failure to Deposit Penalty
  Businesses that fail to deposit employment taxes on time may incur this penalty.
  
• Dishonored Check Penalty
  This penalty is imposed when a taxpayer’s payment by check or electronic funds transfer is dishonored by their financial institution.
  
• Underpayment of Estimated Tax by Corporations and Individuals
  Taxpayers who fail to pay enough tax through withholding from paychecks or estimated tax payments may incur underpayment penalties.
  

I want to request penalty relief; what should I do next?

If you are seeking penalty relief for non-fulfillment of tax obligations, there are certain steps you can take to increase your chances of success. At the law office of Steven N. Klitzner, we understand the complexities of the IRS penalty abatement process and can guide you through it.

Our team will review your situation, gather the necessary documentation, and develop a strong case for penalty relief. With our expertise and dedication, we have helped numerous clients successfully reduce or eliminate their tax penalties.

Don’t let the stress of owing IRS penalties consume you; contact us today to take the first step towards resolving your tax problems. Call us at (305) 564-9199 for a free and confidential consultation.