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IRS Tax Interest and Penalties: Generally Incurred Tax Penalties
IRS interest and penalties are often the cause of approximated tax underpayments or from failing to file or pay your taxes by the required date.
Did you know that the IRS has more than one-hundred and forty different tax penalties they are able to charge you with?
Even though this is such a large number, often there are only a few major ones that are employed by the IRS. The most used penalties include:
- The Penalty for Negligence or Intentional Disregard.
- Failure to File Penalty.
- Late Payment Penalty.
- The Penalty for Underpaying Estimated Taxes.
- Substantial Understatement Penalty.
IRS penalties are used to encourage compliance, and to produce a reasonable tax code for all taxpayers. It lets them know no one is above IRS law, and anyone who does not comply will be punished accordingly. The IRS computer is utilized to assess the various penalties. However, penalties assessed are not always justified. Interest and penalties can be declined even in situations where the IRS is believed to be correct. To know the amount of money you owe the IRS, which includes tax interest and penalties, and when this payment is due, you will receive an IRS assessment letter, also known as an Examination Report.
There are many penalties the IRS has under its belt that correspond to different things. The payment amount for each penalty varies depending on the specific item. The IRS has five fundamental penalty categories:
- Combined Penalties.
- Late Return or Failure to File Penalties.
- Underpayment Penalties (Failure to Pay Taxes, Failing or Underpaying Estimated Taxes).
- Fraud Penalties.
- Accuracy-Related Penalties.
Fraud penalties are considered the most severe by the IRS and taxpayers. There are numerous types of penalties for dealing with fraud and all are very harsh. For example, if you chose to underreport your total revenue by $100,000 fraudulently to the IRS, they can find you seventy-five percent of the amounts you underreported. Your penalty will equal $75,000 plus any additional interest incurred.
Reducing or Eliminating Penalties and Interest
During IRS penalty abatement, you are able to reduce any interest or penalties you might have incurred. When individuals file for penalty abatement, they are capable of having a large portion of their penalties eliminated. In some instances, all the penalties will be abated. This does not apply for interest; however, you would need to file separately for Interest Abatement. All you need to do to have your penalties abated is to demonstrate a reasonable cause. Penalty abatement can eliminate part of a large financial burden you are facing. On most occasions, twenty-five percent of the complete tax debt is made up of penalties.
However, penalties can actually make up ninety-percent of what is actually due largely due to a failure to file, as well as total underpayment interest rates. You can request a quote today if you need a professional tax expert to assist you to abate incurred penalties, or even if you require a free consultation to examine if you are eligible for penalty abatement.