Taxpayer Penalties and Interest Flashcards
What are the types of taxpayer penalties?
Taxpayer penalties are categorized into civil or criminal.
What are civil penalties?
Civil penalties are monetary fines.
What are ad valorem penalties?
Ad valorem penalties are based on a percentage of the tax owed.
What are assessable penalties?
Assessable penalties are fixed dollar amounts, such as $5,000 for frivolous returns.
What are criminal penalties?
Criminal penalties are rare but serious and may include imprisonment in addition to fines.
What is the penalty for failure-to-file?
The penalty is 5% of unpaid tax per month, with a maximum of 25%.
What happens if fraud is involved in failure-to-file?
The penalty increases to 15% per month, with a maximum of 75%.
What is the penalty for failure-to-pay?
The penalty is 0.5% of unpaid tax per month, with a maximum of 25%.
How does an installment agreement affect the failure-to-pay penalty?
The penalty is reduced to 0.25% if an installment agreement is in place.
What can happen after the IRS issues a levy notice for failure-to-pay?
The penalty can increase to 1%.
What is the penalty for combined failure-to-file and failure-to-pay?
The total penalty is capped at 5% per month.
What is the accuracy-related penalty?
The accuracy-related penalty is 20% for negligence or substantial understatement of tax.
What is the penalty for frivolous tax submissions?
The penalty is $5,000 for incomplete, incorrect, or clearly invalid returns.
What is the penalty for fraud?
The penalty is 75% of the unpaid tax due to fraud.
What is the penalty for failure to supply SSN/ITIN?
The penalty is $50 for each failure.
How can taxpayers challenge penalties?
Taxpayers can dispute penalties before assessment, after assessment but before payment, or after paying by requesting a refund.
What is First-Time Abatement (FTA)?
Taxpayers can request penalty relief if they have no penalties in the last 3 years, all required returns are filed, and taxes owed are paid or scheduled for payment.
What situations may qualify for reasonable cause relief?
Situations include death, serious illness, unavoidable absence, missing records, and reliance on advice.
What is the Trust Fund Recovery Penalty (TFRP)?
The TFRP applies when businesses fail to pay withheld taxes, and the penalty equals the full unpaid tax plus interest.
Who can be held personally liable under TFRP?
Responsible persons such as owners or managers who willfully failed to pay can be held personally liable.
What happens if the IRS fails to assess additional taxes within 3 years?
Certain penalties and interest may be suspended.
What types of situations do not allow for suspension of penalties?
Suspension does not apply to fraudulent returns, failure-to-pay penalties, or misstatements.
How can taxpayers stop interest from accruing?
Taxpayers can stop interest by sending payment for the unpaid amount to the IRS.
What are common criminal penalties?
Common offenses include tax evasion, willful failure to collect or pay tax, willful failure to file or pay, fraud and false statements, obstruction of IRS laws, and conspiracy to defraud.
What are the penalties for tax evasion?
The fine can be up to $250,000 for individuals, with imprisonment up to 5 years, or both.
What are the penalties for willful failure to collect or pay tax?
The penalties are the same as for tax evasion.
What are the penalties for willful failure to file or pay?
The fine can be up to $100,000 or imprisonment up to 1 year.
What are the penalties for fraud and false statements?
The fine can be up to $250,000 and imprisonment up to 3 years.
What are the penalties for obstruction of IRS laws?
The fine can be up to $250,000 and imprisonment up to 3 years.
What are the penalties for conspiracy to defraud?
The fine can be up to $250,000 and imprisonment up to 5 years.
How can taxpayers request relief for improperly assessed interest?
Taxpayers can file Form 843 to request interest relief if the IRS delays sending notices.
When can the IRS reduce interest?
The IRS can reduce interest only if caused by IRS error or unreasonable delay.
