December 13, 2007

IRS Penalties – Can You Get Rid of those darn Penalties??

If you owe back taxes, your IRS Problems are accruing. What we mean by this is that the amount of taxes you owe is growing as both penalties and interest are being added. This growing amount can cause you and your family both financial and emotional stress. Let us explore the many types of penalties

The IRS uses penalties to punish taxpayers who file late, who pay their taxes late, who owe back taxes, who omit information on their returns, and who understate their income.

Types of Penalties

� Failure to File � You will pay 5% per month up to 25% if you file late.
� Failure to Pay � You will pay �% to 1% per month of the amount you failed to pay on time.
� Accuracy � You will have a 20% penalty added to your bill if you underestimate your income.
� Fraud � You will pay 75% of the amount you underreported or omitted; You will pay 15% for every month (up to 75%) if you failed to file a return.
� Combined � You will pay 5% per month if you file late and pay late.

With these penalties added to what you owe, your tax debt can increase quickly. One option you have if you are unable to file on time is to consider filing for an extension. With this option, you may be able to reduce or even eliminate the Failure to File penalty.

Taxpayers who can show �Good Faith and Reasonable Cause� can get these penalties cancelled. If you can establish that you did not deliberately set out to cheat, mislead, or deceive the IRS, then the penalties do not apply.

Good Faith

Examples of �Good Faith� include ignorance of the law, reliance on counsel, reliance on IRS advice, and notice requirement.

� Ignorance of the Law � You will need to prove that you did not know you had done anything incorrect.
� Reliance on Counsel � You will need to prove that you provided all the needed information and that you followed the advice of your counsel. Counsel includes tax preparers, attorneys, accountants, and enrolled agents.
� IRS Advice � You will need to provide a copy of the letter that contains the advice you received from the IRS.
� Notice Requirement � You are �on notice� regarding a decision on your tax return by the IRS even though you are not able to read every IRS publication to know all the rules and regulations.

Reasonable Cause

Here are a few examples of �Reasonable Cause�:

� Medical issues including death, injury or prolonged illness
� Traumatic issues which cause serious disruption of your life such as moving or natural disasters
� Personal problems including divorce, substance abuse, etc. by a family member that cause financial problems
� Financial problems which involve loss of a job or failure of a business
� Necessary records that have been lost or are unavailable not due to negligence

In fact, any reason that can be established showing you did not deliberately intend to cheat, mislead, or deceive the IRS can qualify as reasonable cause.

Let our knowledgeable staff help you understand these complicated issues. Contact us today if you need IRS Help so we can help you solve any of the IRS Problems you may have.