Killing you Softly: Penalties and Interest fees are devastating. More than punishment, these outlandish fees are a lucrative source of income for the IRS. If you want to keep your finances from being swallowed by ever-increasing tax debt, know your enemy- the dreaded IRS Penalties.
The Penalty Box
Accuracy Penalties: The IRS can add a 20% penalty if they find you understated your income tax liability.
Fraud Penalties: If you fraudulently underreport your income the penalty is 75% of the underreported amount.
Failure to Pay Taxes Penalties: This penalty starts on April 16 for the unpaid amount. Half a percent is added every day that your tax debt goes unpaid.
Late Filing of Return Penalties: The IRS can impose a penalty of 5% per month based on the the tax balance due, up to 25% total.
Combined Penalties: The IRS can impose a combined penalty of 5% per month for up to 5 months.
Stop the Bleeding: Apply for Penalty Abatement.
Penalties will grow unless you stop them. If you apply for Penalty Abatement you can stop the penalties and reduce your debt by thousands of dollars. But first, you have to qualify.
Qualifications- Reasonable Cause for Not Paying Penalties
- Serious illness of you or a family member.
- Unavoidable absence
- Business Records destroyed (by fire or other cause)
- Taxpayer's ability to make deposits or payments impaired by civil disturbances
- Lack of funds applies, but only when you can prove lack of funds occurred despite exercising ordinary business prudence.
Other explanations may be acceptable, but you have to prove you exercised ordinary business care.
Fight Back - How to request Penalty Abatement.
- Fill out IRS form 843, “Claim for Refund or Request for Abatement.”
- Include copies of documents that prove your case.
- Make copies of any letter you send to the IRS.
Warning: Convincing the IRS that you need Penalty Abatement is incredibly difficult, even for the professionals! A penalty abatement should be used in addition to a formal tax resolution. Talk to a tax debt professional to make sure that you are placed into the best possible situation.