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Tax Penalties: Common IRS Income Tax Penalty Information & Help

Thinking about skipping out of paying taxes this year? Well maybe you should think again. The IRS has around 140 of different penalties that can be applied for those not living up to their tax obligations. Keeping your taxes current and paid will prevent you from having to pay interest or other penalty charges.

Here is a summary of some of the more popular tax penalties:

Failure to Pay Penalty

Once you have filed your taxes then you have to pay them. Failure to pay your taxes will result in a penalty of between 0.25 and 1% of the unpaid or outstanding amount owed. The standard charge per month is 0.5%. This amount will continue to grow starting on the due date of the tax return, April 15th.  This penalty grows per month to a maximum of 25% of the amount owed.

If you find that you are unable to pay the taxes owed, it is better to request an installment plan. If you acknowledge that taxes are due and request an installment feature the charge will be the lowest percentage (0.25%) available.

The IRS does offer some relief to some people who have “reasonable cause” for not paying through penalty abatement. The following is a sample of some reasonable causes for not being able to pay your taxes:

  • Death
  • Taxpayer’s papers are destroyed by fire, flood, hurricane etc.
  • Poor tax advice, either from the IRS or from a tax accountant/lawyer
  • Other

Failure to File Penalty

Most people cringe at tax time. To avoid paying a hefty Failure to File penalty it is essential that a tax return be submitted. The Failure to File penalty is a monthly charge of 5% rather than the 0.5% of the failure to pay penalty. At ten times the amount of a Failure to Pay penalty it makes sense to get the tax return in on time. Submitting a tax return will prove to the IRS that you are not trying to hide anything. Failure to file gives the impression that you know that you have to pay but you don’t want to pay your taxes.

Most tax forms are due April 15th. If you have not filed your return by this date then will be a 5% charge on the amount owed without any other penalties added in. If no tax return is received by the IRS by September 16th then you will be charged the maximum penalty which is 25% of the amount owed.

Tax Fraud Penalty

If the IRS believes the tax return has been submitted with fraudulent intent, then the penalty is significantly increased. Rather than the 0.5% charge for Failure to Pay or the 5% for the Failure to File, if fraud is suspected filers will get a whopping 15% per month and will have to pay a 75% of the original taxes. The IRS will audit the books and if the audit clearly shows that there was intent to meaningfully under report or omit income in order to have fewer taxes to pay, the penalty will be imposed.

General Civil Tax Fraud Penalty

This will be charged if there was a clear intention of “cooking the books”. Some things that the IRS would look for are:
  • Lack of record keeping
  • Destroying receipts, record books and data
  • Using false personal information such as Social Security Number
  • Using cash only

Fraudulent Failure to File Civil Penalty

This will be levied if the return is filed late or not filed and the IRS can prove it is fraudulent or that no return was filed specifically to avoid paying taxes, then Tax Fraud penalties will be charged. The IRS may institute this penalty if:
  • There is no explanation why you did not file a return
  • There is a history of neglect in tax filing
  • The filer new about the tax requirement and still did not file

Unlike some of the other penalties, if the filer dies, or files for bankruptcy it does not release the tax debt. The taxes due on a fraudulent submission require payment.

Criminal Tax Penalty

Most tax convictions result from civil penalties, however, taxpayers can also have criminal charges levied against them resulting in fines and even jail. Some criminal penalties that are imposed are:

  • Filing a Fraudulent Return

    This felony charge carries up to 3 years in prison and up to $100,000 in fines.
  • Tax Evasion Penalty

    If illegal means are used to hide financial records and incomes in order to avoid taxes there maybe a Tax Evasion charge handed out. Tax evasion can land you in jail for up to 5 years and $100,000 in fines.

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  • Tax Penalties & Interest
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