Whether you failed to file your taxes or can’t substantiate your filing, what you owe is just the start with IRS penalties. The True Resolve Tax Professionals in Denver have helped clients work through a variety of personal and business tax problems, and it’s often the exorbitant penalties that take most people by surprise. What you might not know is that under specific circumstances, you can have these fees abated.
Let’s say you haven’t filed in a few of years because you know you’re going to owe. Perhaps, you have a ballpark figure in your mind as to what you need to pay to the IRS. Now add a hefty Failure to File Fee which is a 5% penalty on the taxes you owe for each month of non-payment, topping out at 25% of your unpaid taxes. Now, that’s just one of over 100 penalties the IRS can apply to your situation.
Here are a few more examples demonstrating that what you owe is just the start with IRS penalties for businesses and individuals:
- Failure to Pay Penalty – Whether you’ve filed or not, not paying what you owe by the due date is subject to a penalty of 0.5% of your unpaid taxes each month.
- Accuracy Penalties – An inaccurate return, either by substantial understatement or through negligence and disregard, can face a flat penalty of 20% of the correct tax amount.
- Frivolous Tax Return Penalty – If you don’t include proper, clear and accurate information in your tax return and the IRS believes you’re purposely delaying the process, it could cost you a hefty $5,000 as an individual tax payer. Filing a joint return with a spouse? You’ll each receive a penalty, increasing your total by a whopping $10,000 extra on your tax bill.
- Civil Fraud Penalty – Negligence and ignorance aside, if there’s evidence of fraud, a stunning penalty of 75% on the tax owed is just the first hurdle you’ll face. Your case may also be sent to the Criminal Investigation Division of the IRS for possible criminal prosecution.
And of course, don’t think the IRS will let you get away with bouncing a check, especially large amounts. Anything that bounces over $1,250 is penalized by 2% of the check amount. For lesser figures, you’ll pay the amount of the check or $25, whichever is less.
What You Need to Know About IRS Penalty Abatement
While the IRS has every right to impose penalties, you also have the right to dispute them and request an abatement. Of course, like any other dealings with the IRS, this requires meticulous preparation of paperwork and a keen understanding of their exact regulations. One false move, and it’s game over.
At True Resolve, our IRS enrolled agents typically work with clients on the most common option, First-Time Penalty Abatement which only applies to failure to file, failure to pay and failure to deposit penalties. While this option is the easiest to qualify for, there are still strict rules for eligibility.
To potentially qualify for a First-Time Penalty Abatement, you must have:
- All current tax returns or extensions properly filed
- Paid in full, or arranged payments, any taxes owed
- A clean history of filing and payment compliance
- No penalties applied for the previous 3 tax years
If you don’t fit the criteria for first-time, we can also explore the option of reasonable cause. This applies to taxpayers who attempted to comply with all tax laws but whose efforts were prevented by situations out of their control. If this sounds like you, our experts will assist you in applying for a penalty waiver or abatement based on reasonable cause.
In order to qualify, your particular circumstance must align with one of the options the IRS will accept such as: natural disaster, undue hardship, inability to obtain records, as well as death, serious illness or unavoidable absence. You can also claim poor advice from the IRS or your tax advisor, as well as an IRS error – just remember that the burden of proof is entirely on you, so choose wisely.
No matter your situation, remember that what you owe is just the start with IRS penalties. So, don’t wait another day to explore your options for penalty abatement with True Resolve in Denver in your corner. Our enrolled IRS agents will complete an assessment, determine the best course of action and act as your advocate throughout the entire process. We’re here to help you get the relief you need.