Do IRS Penalties Hurt or Help with Tax Filing Compliance?

Tax FilingA recently released report by the Internal Revenue Service Advisory Council says that the IRS goal of tax filing compliance might be hindered more than helped by the agency's penalties. The report urges the IRS to conduct a review of its fines to see if they help more than they hurt the effort to get people to file returns and pay taxes.

According to Bloomberg BNA, much of the report addresses inconsistencies in how the IRS handles penalty relief requests from people who failed to file.

Bloomberg BNA points out that penalty relief is available under the tax code, including for those who substantially underpay their federal income tax.

The IRS Advisory Council report notes that there are currently more than 170 tax code provisions for penalties. Back in 1955, there were just 14.

The Council said its recommendations are made to help ensure that taxpayers get fair, consistent treatment. In that way, voluntary compliance will be encouraged.

"Policy decisions need to be consistent with the universally agreed-upon purpose of penalties: encouraging voluntary compliance," the report said.

One of its recommendations is "modest liberalization of penalty abatement decisions," as well as a streamlining of the process. That would help make the IRS more efficient and "reduce the burden on substantially compliant taxpayers."

We do not yet know what the fate of these IRS tax policy recommendations will be, but we do know that in many situations those who fail to file can face substantial penalties. In some cases, they can even face criminal charges.

With the help of an experienced tax law firm, like Robert J. Fedor Esq., LLC in Chicago and Cleveland, our tax attorneys can let you know what happens if you fail to file tax returns and return you to compliance and peace of mind.

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