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IRS PENALTIES

The IRS just made a huge statement by cracking down on the well known actor Wesley Snipes. Mr. Snipes was accused of felony charges of tax fraud and conspiracy as well as three misdemeanor accounts of failing to file tax returns. The actor was acquitted of the federal tax fraud and conspiracy charges; however he was found guilty of the three misdemeanor accounts and sentenced to the maximum prison sentence of three years. This sentence sends huge warning to the millions of taxpayers who fail to file their tax returns each year. The IRS and the Federal courts are now willing to penalize those who fail to follow their rules.

There are many penalties that the IRS can charge a taxpayer with. A few of the most common penalties include estimated tax penalty, failure to file penalty, failure to pay penalty, and accuracy-related penalties. Along with penalties, interest is also charged because of the time value of money. The estimated tax penalty is one that is charged when a taxpayer fails to pay the IRS the estimated tax that is calculated as income is earned during the year. Most people select the option to take withholding to ensure that their estimated tax is paid throughout the year. Others, for example those who are self-employed, make estimated tax payments throughout the year, usually quarterly, to the IRS. As long as the taxpayer has paid the same amount of taxes from the prior year or they have paid 90% of the current year's tax, whichever is smaller, they will not be penalized.

The failure to pay penalty is for those who do not pay the tax liability by the April 15th deadline. This penalty equals one half a percent of the amount of tax owed each month until the tax is paid. This late payment penalty is applied to those who filed on time but did not pay on time. For taxpayers who do not file and owe taxes the interest rate used is the federal short term interest rate plus three percent. The rate is recalculated every three months as the federal interest rate changes.

The penalty for not filing a return with an amount due is 4.5% for each month that the balance is not paid. The maximum penalty rate charged is 25%. If the return has a refund there is no penalty charged since penalties are calculated on amounts due. It is more costly to not file a return with a tax liability than to file a return with a tax liability and not pay. In other words, you should always file your tax return on time regardless of if you owe money or not.

Accuracy related penalties are charged in regards to substantial understatement of income tax, negligence or disregard of rules and regulations, substantial overstatement of pension liabilities, substantial estate or gift tax understatement, or any substantial valuation misstatement. The penalty charged is 20% of any portion of tax underpayment.

If there is a dispute of the penalties charged you may write a letter or use form 843 to attempt to have the penalties abated, however interest is never forgiven. The only case where interest, penalties, and taxes may be overlooked is through an Offer in Compromise (also known as pennies on the dollar).

Copyright (c) 2008 Jay Allen Finn

Article Source: http://article-kingdom.co.uk

I am a specialist who works with those who have their wages garnished or bank account levied by the IRS. I also help people get current on filing their tax returns. Please visit my website www.doggedbyirs.com for more information.

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