Taxpayers who fail to settle their tax liabilities may be subject to a penalty. The IRS assesses a penalty for a variety of reasons, including failure to:
- File tax return on time
- Pay tax responsibilities on time and the right way
- Prepare accurate and detailed return
- Provide complete information returns
If you do not pay the penalty in full, the IRS may charge you interest. They levy monthly fines until you pay the amount owed in full.
Penalty waivers are available to taxpayers. Taxpayers who fail to submit or pay their penalty may request post-filing relief or “IRS penalty abatement.” Simply put, the abatement process is the removal of penalties after they have been imposed on the taxpayer. FTF and FTP penalties typically necessitate mitigation since the IRS calculates these penalties electronically (through its computer systems) when a return is submitted or a transaction is made on a total balance account.
Typical IRS Penalties
- Information Return: Those who fail to file or supply their mandatory information return or payee statement on time.
- Failure to File: When you fail to file your tax return by the deadline, you will face penalties.
- Failure to Pay: This applies if you do not pay your tax bill by the deadline.
- Accuracy-Related: Occurs when you do not declare all of your income and earnings or when you claim deductions or credits for which you are ineligible.
- Failure to Deposit: When you fail to pay employment taxes correctly or on time, you will face penalties.
- Tax Return Preparer Misconduct: Apply to tax return preparers who commit fraud.
- Dishonored Checks: It is when your bank refuses to accept your cheque or other forms of payment.
- Underpayment of Estimated Tax by Corporations: When you fail to pay estimated tax properly or on time for a company or corporation, this penalty is imposed.
- Underpayment of Estimated Tax by Individuals: As an individual, this applies when you fail to pay anticipated tax properly or on time.
- Be sure to include: specific circumstances outside your control that caused the noncompliance (such as illness, lost records, etc.), demonstrate how other situations were affected by the reasonable cause, and ensure you provide specific evidence for the time of noncompliance.
- Always make use of IRS First-Time Penalty Abatement Relief (FTA)
- In writing, request reasonable cause
- Unfavorable decisions may be appealed
- Show previous compliance
- Abatement requests should be followed up on
- Do not pay the penalty until you have requested fair cause.
- Do not rely on the “Tax Pro” and “financial difficulty” justifications for FTF.
- Don’t forget to file a timely abatement request before the law ends.
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