The Abatement of Penalties

Unless you have experience of tax law issues and penalties then the Internal Revenue Code is full of charges that could be filed should a tax return not be filed on time so this is reason enough to ensure that all given deadlines are met.

We are here to help you avoid such penalties and even appeal them if there have been some already implemented and that are currently awaiting payment. There are a number of penalties, which could be initiated should a return pass the deadline or perhaps even if a return has contradictory information included:

The Failure to File Penalty

As with most countries there are more often than not going to be penalties if you fail to deliver it to the IRS by the due date given (including extensions), with a set cost of 5% of the total tax that remains outstanding by the due date, this will continue to be charged each month until the account is clear but it could reach a maximum total of 25% of your tax unless there is a genuine reason why a return could not be filed on time.

Should you not file a return at all then this is committing fraud and may warrant the start of IRS investigations.

A Failure to Pay

If you currently have any taxes which remain outstanding, then it is completely possible that a penalty will be implemented and the total fine could be anything from 1% up to 25% of any unpaid taxes.

As with the above point, there will be no need to pay any penalty if there is just reason for the return not being filed on time. If there is a combination of both the failure to file and failure to pay then the penalty could reach a staggering 50% of unpaid tax along with the fact that fraud has been committed by not filing a return and let’s not mention the interest, this will be charged on both the tax outstanding the penalties as well.

Charges for Fraudulent Returns

If you have filed a return to the IRS that has not seen enough information being included or that the figures don’t add up properly then, due to this point, it would be solely on your part and this could mean being subjected to a penalty totaling $500 which is most likely to be implemented if you have done either of the following:

A fraudulent/criminal position directly and only on your part
A wish to start delaying, confusing or interfering with the general administration of all federal income tax laws

The total penalty of $500 could also see other penalties within federal laws also becoming due as a result of an incorrect and potentially fraudulent tax return.

The Accuracy Related Penalty

When it comes to accuracy this is important no matter what you are completing whether it is for a loan or a tax return, if it was either completed inaccurately or falsely then this could lead to huge penalties:

A 20% penalty will apply in this case if a taxpayer has either:

Disregarded or neglected the rules and regulations
There has been an understatement – mainly involving huge sums of income taxes

The term “negligence” simply means that a taxpayer has perhaps intentionally or not failed to ensure that all tax laws are met by first of all preparing a tax return but secondly meeting the necessary deadline, which all citizens must adhere to. Aside from this, negligence could also mean a failure to keep detailed accounts or meaning that you have not taken your position seriously enough to avoid any penalties.

A potential 20% penalty of this nature is based on and initiated due to either neglecting or disregarding any of the rules and regulations surrounding the failure to file and / or failure to pay a tax return and is not calculated on the entire underpayment which is stated on a return.

Substantial Authority

Whether there currently is or has been substantial authority of the tax treatment of a particular item listed on a return it will all depend of certain facts and circumstances in which consideration will be given to court opinions based on any filed tax return because at times “legal aid” may be required when it comes to approaching potential issues within a filed tax return and this could include any of the following:

• The Reviewing of Treasury Regulations
• Revenue Rulings / Procedures
• Notices being issued by the IRS for publication in the Internal Revenue Bulletin.
  

Adequate Disclosure

Any understatement could easily be reduced if you have ensured that all facts which are deemed relevant to a tax treatment item that has been “adequately disclosed”, in order to initiate the process of claiming for adequate disclosure, you will need to complete and file form 8275 – Disclosure Statement.

For this to be accepted by the IRS or perhaps even the courts (if it comes that far) then there must be a legitimate reason why an item was treated as it was.

Should your case be as a result of substantial understatement (only) then all items have to meet with the requirements in accordance of 96-58 or a later updated that are considered to be adequately disclosed on your return without the completion and subsequent filing of form 8275. Use form 8275-R the “Regulation Disclosure Statement” which will disclose items or positions contrary to the regulations.

Understatement of Income Tax

When it comes to the filing and assessment of tax returns, these can be either slightly understated but then there is the severe and substantial understatement of income tax payments.

A substantial understatement can be either of the following:

• 10% of the correct tax amount
• $5,000 or more
  

If your tax return has been severely understated then this could lead to the IRS launching an investigation with the possibility of taking further action against the taxpayer involved.

Information Reporting Penalties

For every taxpayer who does not file an information return on time or with the correct information to the IRS by the date due then penalties could be made based on a number of circumstances:

• If the correct information is filed within 30 days after the due date, the penalty is $15 for each late return
• A correct information return is filed after the allocated 30 day period but by 1st August, $30 each
• If information returns are not filed by or on 1st August then this will have a penalty of $50 per return passed the due date
  

There are maximum limits relating to all of these penalties and if the correct information is not provided in the form of payee statements (the information return) by the required due date then as above, a $50 penalty for each statement will become due.

Should such an act be intentional then the penalties of not providing the right information could see any of the following more serious charges being warranted:

$100 per statement or 5% or 10% penalty – (depending solely on the type of statement) of the total amount that is shown on the statement