There are over 150 kinds of civil penalties in the U.S. Internal Revenue Code, ranging in severity which is reflected in the amount of the applicable fines.
Failure to timely file, pay, and deposit are the most common tax penalties. As the descriptions imply, these penalties apply when a tax return or payment is not remitted to the IRS timely. These penalties are typically assessed automatically by the IRS’s computer system. Taxpayers are typically find out that they have been assessed penalties when they receive an IRS notice.
Accuracy, fraud, and valuation or excessive refund claim penalties are also common. These penalties are generally assessed by the IRS in response to the taxpayer filing a tax return that was incorrect. They are typically assessed by the IRS after an audit or examination of the tax return.
Most penalties can be removed or abated if the taxpayer can establish that he or she acted with reasonable case and good faith. It is up to the taxpayer marshall the facts and to present the facts in a well ordered and logical manner via one of the avenues for asking that the penalties be abated. This presentation must also navigate the large body of mostly unfavorable case law that addresses the reasonable cause defense, which the IRS often cites in denying penalty relief.
There are other avenues for obtaining penalty relief that should also be considered, such as the IRS’s first time abate policy, compliance with the policies in the IRS’s penalty handbook, and various programs the IRS offers–such as the offshore voluntary disclosure program and the streamlined filing procedures.
Please contact us immediately if you have received an IRS notice indicating that penalties are due. We can help you figure out what your options are and help get the penalties abated.