IRS penalties
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IRS penalties, as set out in the Internal Revenue Code, are to "enhance voluntary compliance." Policy P-118, IRM 1.2.1.2.3. There are over 140 separate IRS penalty provisions. IRM 120.1.1.1.1. The most common IRS civil law penalties include the fraudulent return, fraudulent failure to file return, accuracy related penalties, failure to file, failure to pay, frivolous return penalties.
The fraudulent return penalty is set out in IRC Section 6663 (see
). This penalty is "75% of the portion of the underpayment which is attributable to fraud." The fraudulent failure to file return penalty is set out in IRC Section 6651(f). This penalty also has a maximum 75% rate.The accuracy-related penalties are set out in IRC Section 6662 (see
). This penalty is 20% of the amount of the understatement attributable to the conduct penalized. Accuracy penalties are divided between the negligency penalty, the substantial understatement penalty, and the substantial valuation misstatemetn penalty.The failure to file penalty is set out in IRC Section 6651(a) (see
). This penalty is 5% of the amount required to be shown on the return, per month up to a max of 25% of the amoiunt required to be shown on the return. If the return is filed more than 60 days after the due date, the minimum penalty is the lesser of $100 or 100% of the tax required to be shown on the return.The failure to pay penalty is set out in IRC Section 6651(a)(2) & (3) (see
). This penalty is 0.5% per month up to 25% of the amount shown as duen on a return.The failure to pay estimated tax penalty is set out in IRC Section 6654 & 6655 (see
) and (see ). The penalty is based on the general underpayment interest rat eunder IRC Section 6621 calculated on the installment amount based on teh "required annual payment" from the date that the estimated installment is due to the earlier of th edate the tax is paid or the original due date of the return.The frivolous return penalty is set out in IRC Section 6702 (see
). This penalty imposes a $500 fine for filing a frivolous income tax return. Penalty applies to an individual who files a return of tax on behalf of a tax shelter (see 26 U.S.C.§6671(b)).