Types of Penalties

Your IRS issues are escalating if you have tax debt. Penalties continue to be assessed to unpaid taxes unless the debt is settled in full. It may be added by IRS personnel or by IRS computer.

The IRS relies on penalties for additional revenue, as well as to dissuade people from missing tax settlements.

Penalties are for:

• Failure to Pay Taxes
  
• Late Filing of Tax Return
  
• Fraud
  
• Accuracy
  
• Combined
  

If you understated your income tax liability on your tax return, accuracy penalties will be compounded on your tax bill. This is 20% of your debt.

Fraud penalties are imposed if you fraudulently excluded or underreported your income on your tax return. This amount equals 75% of the figure exluded.

From 0.25% to one per cent monthly, you may be evaluated with failure to pay taxes penalties. Subsequently added to your debt every 16th of each month, it starts at 0.50% on April 16. It can be increased to 1% if a Notice of Intent to Levy is issued or decreased to 0.25% if an installment agreement is arrived at.

Late filing of tax return penalties are assessed at five per cent montly on the amount due, up to twenty-five per cent of the sum.

A combination of two or more penalties result in combined penalties and it accrues fast.

Penalties may be cancelled if you got incorrect advice from an IRS official, though you should prove that you provided precise information.

You can decrease or eliminate penalties if you can prove reasonable cause why you failed to comply with the tax law. This should be accomplished in writing.

Reasonable cause means you can show a valid reason for acting or failing to act. Financial issues, personal problems, medical issues, unavailable or lost records, and serious disruption of one's life are some common grounds for reasonable cause. An essential element of reasonable cause is to prove that you behaved with "ordinary business care and prudence."