Manny Stephenson

The IRS was levying my bank account because I moved addresses and missed their letters telling me I owed them $10,000 from a side business. TaxDebtAid.com got me in the hands of the right professionals that stop the garnishment quickly.

Stop and Reduce IRS Penalties and Potentially Interest

stop irs penaltiesIs Your Tax Debt Running Up in Fees, Penalties, and Interest?

The IRS and State can send your back taxes or tax debt up very easily when penalties are taken into consideration. Here are a few tax penalties you could face:

  1. 1) Failure to File
    2) Failure to Pay
  2. 3) Underpayments (Estimated Payments)
  3. 4) Accuracy Related Penalties
  4. 5) Fraud
Interest can also make your outstanding tax liability increase. Sometimes, the IRS many not even notify you of additional Tax Penalties or Interest. The IRS or State Revenue Service will need to hear a good explanation for unpaid taxes - which is called Reasonable Cause.

What Is Penalty Abatement?

Whether you want to avoid penalties or want a refund on penalties you have incurred you will need to submit a Penalty Abatement Request - a written request to the IRS Service Center to Remove the Tax Penalty . However, this requires tax expert advice, as the IRS code is complicated. Therefore, we recommend you call or visit IRS Penalties Help . Remember, that this Penalty Abatement Request must have reasonable cause in order to get rid of tax Penalties, interest, and/or fees. If your initial request for penalty abatement is rejected by the IRS, then you can request an appeal.

What Defines Reasonable Cause?

Reasonable Cause includes many reasons but here a few:
  1. 1) Death or Serious Illness in the Family
    2) You were or are seriously ill
    3) You Received Erroneous Information from Tax Practitioner
    4) Erroneous Information Was Given To You By an IRS Employee or IRS Publication
    5) Serious Financial Strain including long period of unemployment
    6) Serious event such as a Divorce
There must be a reasonable reason, and again, reasonable why you did not pay your taxes or file them

The IRS does not explicitly explain reasonable cause. However, they do provide some insight here: Tax Payer Rights

Any Relatively New Tax Penalties?

One New Penalty by the IRS...

According to the IRS, "If you file a claim for refund or credit of income tax in an excessive amount, and you did not have a reasonable basis for making the claim. A claim is for an excessive amount to the extent that the claim exceeds the amount of the allowable claim. The tax penalty can apply to any claim filed after May 25, 2007. The penalty does not apply to any amount on which the fraud penalty or the accelerated penalty on underpayments has been applied."


What Are Typical Penalties & Interest If I File Late or Fail to Pay?

Interest is compounded daily and charged on any unpaid tax once the due date has passed. Your interest rate is equivalent to the short-term Federal interest rate plus an additional 3 percent. This rate changes quarterly.

If you file on time, but you don't pay on time, you typically will be charged .5% interest per month on the back tax balance (however an IRS Installment Agreement can cut this penalty by 50%).. Reasonable Cause is applicable (discussed above), that is, you can prove you had a reasonable cause for not paying. This .5% interest rate increases to 1% after numerous payment periods have surpassed in accordance with the IRS issuing a Notice of Intent to Levy. After 5 months, if you still have not paid the failure to pay interest rate continues to rise not exceeding 25% until the tax is paid.

If you have back taxes and you don't file on time, you can incur additional penalties for failing to file a tax return unless again you can show reasonable cause. 5% is the total penalty in terms of interest for each month you are late in paying your taxes - not greater than 25%. The late filing interest penalty concerns your net taxes owed, which is the amount show on your return any other taxes assessed to be due (minus any tax credits for withholding or timely payments sent in with the return).

In summary, the total penalty for failure to file and pay can be 47.5% (22.5% late filing interest fee, 25% late payment interest rate) of the tax owed. One thing to note is that if your return was filed 60 days past the due day the minimum failure to file penalty is the smaller of $135 or 100% of the tax required.

Since January 2000, if you filed your taxes on time and pursued an Installment Agreement, the penalty then becomes 1/4 a percentage point for each month the installment agreement remains active.

What Are Some Guidelines To Follow With Penalties?

First attack the situation quickly. If you have failed to file a tax return or you failed to pay your taxes contact us for a FREE Tax Penalties Help Consultation. DO NOT wait for tax interest to continue to add up as it will only be worse from inaction. We do not share your information with anyone other than those tax experts that can help you. There is no obligation with the first consultation, if you decide to continue and you can be helped than charges may apply for assistance.

OTHER GREAT RESOURCES:

IRS Notice, IRS Penalties and IRS Interest Charges

Estimated Tax for Individuals