If you are charged a penalty by the Internal Revenue Service (IRS), you may wonder why and what you can do about it.
Penalties are commonly added to unpaid tax liabilities. The IRS charges penalties for lack of payment or underpayment. In addition to a penalty, interest is charged on the full sum owed.
Here are some of the reasons you can be charged a penalty by the IRS:
- If you own a business and fail to pay or withhold sufficient money to cover your quarterly business taxes, a penalty will result.
- Should you request and be approved for an extension to file your tax returns—and then fail to file your tax return—a penalty will be assessed to your tax account. The same goes for failure to file your tax return on time when taxes are owed if you did not file for an extension.
- Many taxpayers do not understand that an extension of time in which to file their taxes is not equivalent to an extension of time in which to pay taxes due. If you obtain an extension but do not pay taxes owed on the original due date, a penalty will follow.
- If you write a bad check to the IRS, expect a penalty to be tacked on to the amount owing.
The IRS charges interest on the full amount owing beginning with the date the payment was due (again, extensions do not apply here). If you receive a notice from the IRS that identifies a date by which you should pay—and you meet that payment deadline—interest will not be charged.
Penalties, and the threat of penalties and interest, help deter tax fraud as well as underscore the enforcement role of the IRS.
What can you do if you are accessed a penalty?
The IRS can remove penalties if you can provide reasonable cause. Among other reasons, the IRS will consider removing the penalty if you can prove you relied on advice from the IRS to your detriment. A common scenario is when you communicated with the IRS, providing full and accurate information, and the guidance you received from the IRS led to an assessment of a penalty. In this case, you can file an abatement request along with appropriate documents for review by the IRS.
If the penalty is significant, speak with a trusted tax attorney to better understand your posture with the IRS, and what you can do about it.
Experienced legal representation on IRS appeals and criminal tax investigations
From offices in Chicago and Cleveland, the tax attorneys at Robert J. Fedor, Esq., LLC help individuals and entities nationwide and abroad respond to tax controversy, or criminal tax charges. When you need responsive legal advice, contact us or call 800-579-0997.