What are the Common IRS Penalties – Don’t miss the deadlines

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Common IRS Penalties

The Internal Revenue Service (IRS) may select returns for accurate reporting and compliance. If errors are found or they need additional information, you may receive a notice, you may also receive a notice if penalties are assessed. Here is a list of common IRS penalties

Common IRS Penalties

Late Payment Penalty

  • Failure to File Penalty: This penalty applies if you don’t file your tax return by the deadline, including extensions if applicable. The penalty is usually 5% of the unpaid taxes for each month or part of a month that the return is late, up to a maximum of 25%.
  • Failure to Pay Penalty: If you fail to pay your taxes by the deadline, you may be subject to this penalty. The penalty is typically 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.
  • Accuracy-Related Penalty: This penalty applies if there is an underpayment of tax due to negligence, substantial understatement of income tax, or substantial valuation misstatement. The penalty is 20% of the underpayment attributable to negligence or disregard of rules and regulations, or 40% in cases of gross valuation misstatements.

Late Payment Penalty

  • Late Payment Penalty: If you file your return on time but don’t pay the taxes owed by the deadline, you may be subject to a late payment penalty. The penalty is typically 0.5% of the unpaid taxes for each month or part of a month that the tax remains unpaid, up to a maximum of 25%.
  • Underpayment Penalty: This penalty applies if you didn’t pay enough tax throughout the year, either through withholding or estimated tax payments. The amount of the penalty varies depending on how much you underpaid and for how long.
  • Failure to Deposit Penalty: This penalty applies to businesses that fail to deposit certain taxes as required. The penalty can range from 2% to 15% of the unpaid tax amount, depending on how late the deposit is.

Other Common IRS Penalties

  • Frivolous Tax Submission Penalty: If you submit a tax return or other document that the IRS determines to be frivolous, you may be subject to a penalty of $5,000.
  • Civil Fraud Penalty: This penalty applies if there is an underpayment of tax due to fraud. The penalty is 75% of the underpayment due to fraud.
  • Criminal Penalties: In severe cases of tax evasion or fraud, criminal penalties may apply, including fines and imprisonment.

These apply even if there is no tax due.

  • FBAR (FinCen 114)           Up to $10,000 (non-willful); greater of $100,000 or 50% of account (willful)
  • Form 8938 (FATCA)          $10,000 + $10,000 per 30 days (max $60,000
  • Forms 3520a/3520             Greater of $10,000 or 35% of transaction
  • Form 5471 / 8865              $10,000 per form, per year
  • Form 8621 (PFIC)              No fixed dollar penalty, but statute of limitations stays open indefinitely

Business & Payroll – Common IRS Penalties

  • Failure to Deposit Payroll Taxes – 2% – 15% depending on how late the payment was made
  • Trust Fund Recovery Penalty – 100% of unpaid payroll taxes – can be assessed personally against owners/officers.

    Fraud & Abuse Penalties

    • Civil Fraud Penalty – 75% of underpayment – Requires intent
    • Frivolous Return Penalty – $5,000 per submission – applies to tax protester or nonsense filings

    Criminal Penalties (Severe Cases)

    • Tax Evasion
    • Willful Failure to File
    • False Statements
    • Can result in fines and/or prison

    What are the options for resolutions?

    Depending on the circumstance that triggered the common IRS penalty there may be options available for resolution. As the steps for resolution depend on the type of notice and the cause, it is advisable to discuss your issue with an experience tax professional.

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