IR-2020-59, March 25, 2020 WASHINGTON — To help people facing the challenges of COVID-19 issues, the Internal Revenue Service announced today a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to … Alternatively, the most accurate way to figure out what you owe, and what you should do about it, is to contact the Tax Debt Relief Helpline; because they’re the only experts that I refer my readers to, and the only tax resolution service that I trust to get the job done right. Keep in mind, the IRS has a limited number of agents and doesn’t want to spend time reviewing erroneous appeals claims; if you truly do deserve to be hit with a penalty, but you keep pushing to have it removed, all you’re going to do is piss them off and invite further inspection (perhaps via additional investigations or even an official Audit, which could end up costing you even more money!). My personal opinion is that the benefits to hiring an expert far outweigh the costs, which is why I recommend that all of my readers call the Tax Debt Relief Helpline to get their assistance in dealing with their IRS problems. . While the terms are often used interchangeably, tax fraud and tax evasion are treated differently by the IRS, so the first thing you need to determine is which of these issues you could be facing, because the consequences for being found guilty are dramatically different. The first step is always to determine the exact amount of taxes that you underpaid. We do not provide credit repair services. This means that you could end up owing a great deal of money on an insignificant debt, so as I’ve stated earlier, your best option here is to make sure that you never fall into the situation where this penalty is applied to your account. If the second attempt by the clearinghouse makes it, then you won’t be hit with the dishonored check penalty, but it goes through after your due date, then you may end up being charged interest and a penalty for late payment, so that’s something to take into account as well. The thing to keep in mind here is that you need to go into detail, explaining what happened, what went wrong, why you weren’t able to take care of your filing, payments, or whatever else you were supposed to do, and clearly explain that you want to make good on your mistake by getting back into perfect standing with the IRS. How much do you know about the IRS’s Fresh Start Program, or about the IRS’s Tax Debt Forgiveness opportunities? If you have questions about anything that you didn’t find covered in this Guide, please feel free to post them in the Comments section below and I’ll do my best to get you a response within 24 hours. According to the IRS, interest rates on underpayments will remain the same at 5% for the calendar quarter beginning January 1, 2020. ), You were hit with a failure to file or failure to pay penalty, You already sent a written request asking the IRS to remove that penalty, Your written request for penalty abatement was rejected, You received a Notice of Disallowance, which provides you with details on your rights to appeal the decision, Interest will be charged on unpaid taxes, penalties and previously accumulated interest until your debt is paid in full, The interest rate is set quarterly (every three months), Interest for the Failure to File Penalty or for Accuracy of Information Penalties will begin on the date your return was due (including requested filing extensions), Interest on the Failure to Pay Penalty, on Estimated Tax mistakes, and on Dishonored Check Penalties will begin on the date you were notified of the penalty in writing (the date on your notice letter). The IRS considers its tax system as a “pay-as-you-go” process, which means that you’re supposed to be making tax payments as you earn income throughout the year. Failure to file: Internal Revenue Code §6651(a)(1) 1. But the maximum penalty in any one month is 5 percent, rather than 5.5 percent, which is what it should be if you added the nonfiling penalty to the nonpayment penalty. We do not assume tax debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice. To get assigned a tax penalty, you have to owe the IRS money, and fail to pay up by the deadline, or you have to get caught attempting to get out of paying the money you owe by hiding information, failing to account for income, lying about expenses, or attempting some kind of tax fraud. Income tax returns are subject to a minimum late filing penalty when filed more than 60 days after the return due date, including extensions. The Statutory Exception Penalty Abatement Program is the third and final way to get rid of IRS penalties, and this one is an excellent way to get out of a penalty, but only if you can prove that you were given improper advice about what you were supposed to do with your taxes. Do you pay estimated taxes? 2020 Guide to Federal Tax Liens – What Are They? Unfortunately, this is an easy position to fall into since the IRS is one of the least flexible, most complicated and most demanding money lenders in the history of the world. Let’s be clear about one thing – you do not want to get hit with this penalty, so you need to be extremely careful in ensuring that any payroll taxes that you could be responsible for are being taken care of properly. The fastest, easiest, and least stressful way to determine all of the information above is going to be hiring an expert Tax Resolution Agency to review your case and negotiate with the IRS for you, as your official representative. Dear IRS, no penalties please! The penalty for bounced checks is officially referred to as a “Dishonored Payments Penalty”, and covered in IRS Topic Number 206, which lays out the rules for what happens if your payment to the IRS doesn’t clear. The Penalty for Underestimated Quarterly Tax Payments, The Penalty for Failure to Timely File Your Tax Return, The Penalty for Failure to Timely Pay Your Taxes, The Penalty for Failure to Timely Pay Taxes After Issuance of Notice, The Penalty for Dishonored Payments (Bounced Checks), The Penalty for Unpaid Withholding Taxes (Payroll Taxes), The Penalty for Failing to Provide Foreign Information, Penalties as Excise Taxes (Tax Stamps, Manufacturers, Retailors, Pension & Benefit Plans, Charities & Private Foundations), IRS Penalty Relief (via Penalty Abatement), Penalty Abatement via Administrative Waiver & First Time Penalty, Penalty Abatement via Statutory Exception, The IRS Penalty Abatement Customer Service Hotline, Interest Charges on Penalties & Unpaid Taxes, Reasonable Cause Penalty Abatement Program, Administrative Waiver and First Time Penalty Abatement Program, Statutory Exception Penalty Abatement Program, 2020 Guide to Filing & Paying IRS Back Taxes, 2020 Guide to IRS Tax Resolution Services, 2020 Guide to The IRS Fresh Start Program, 2020 Guide to the IRS Collections Process. The penalty for underpaying your taxes can change from year to year and in the vast majority of instances, the amount of penalty depends on your circumstances. Obviously, any of these situations would be terrible, so you’ll want to avoid them at all costs. 5% of unpaid tax required to be reported 2. Remember, IRS agents spend 40+ hours a week dealing with tax-related issues, while you’ve probably spent about 4 hours thinking about this over the past year; who do you think is going to know more about the ins and outs of the IRS Tax Code? What I mean by that is that if you make so little money or have such creative accounting that you never actually owe the IRS any money, then it’s impossible for you to be hit with a penalty, even if you file late or fail to file entirely. To get help from the IRS directly, you can call their toll-free customer service phone number at 1-800-829-1040. Taxpayers claim that penalties are not warranted for many reasons, but what actually works? 2020 Guide to Filing IRS Tax Extension Forms, 2020 Guide to The IRS Offer in Compromise Program & Form 656, Failure to Timely Pay After Issuance of Notice, Accuracy-Related Penalties (Under-calculations, Careless Mistakes, etc. This rule is altered slightly for high-income taxpayers. If you were unable to make your estimated payment because of disaster, death or other unusual situation; If you had a reasonable cause for not making the payment AND. Because unlike everyone else you pay money to, the IRS doesn’t provide you with a bill for what you owe (it’s your responsibility to determine what you’re supposed to pay), doesn’t offer free extensions to your due date deadlines, and wants you to pay them everything you owe all at once. If the adjusted gross income on your previous year’s return … Finally, if the IRS wants to use the “substantial understatement” qualification against you, then they’ll need to prove that your calculations were off by more than 10%, or at least $5,000, either of which would qualify you for the penalty. If you file your return by April 15, 2020, no interest will be charged on the penalty if you pay the penalty by the date shown on the bill. See my section below on Reasonable Cause for details about how this process works. The IRS will figure any penalty for underpayment of estimated tax and send you a bill. Basically, you should use this penalty abatement opportunity as an after-the-fact way to get a refund on whatever penalty you ended up paying the IRS, because if you request the abatement early, but don’t have the money to pay back your debt, then the failure-to-file penalty will keep accruing and you won’t receive forgiveness for any additional debt that accumulates after your approval. However, the IRS and states want taxpayers to make 2019 tax payments on time by April 15, 2020. Finally, if you have any other questions about taxes or the IRS, please feel free to post them in the Comments section below and I will get you a response as quickly as possible. The penalty for taking the wrong required minimum distribution is one of the stiffest in the tax code. If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. While that sounds like a stupid name, this penalty is serious business, as the late filing penalty will typically be assigned at 5% of the unpaid taxes for each month or part of a month that your return is filed late, capped at 25% of your total unpaid taxes. The best way to avoid this penalty is to issue estimated payments in four equal amounts, unless your income varies throughout the year. You’ll get a notice from the IRS informing you of any estimated tax penalties and fees. Use Form 2210 to see if you owe a penalty for underpaying your estimated tax and, if you do, to figure the amount of the penalty. To determine how much your Underpayment of Estimated Tax Penalty will be, see IRS Form 2210. If you miss the April 15th deadline for filing your tax return, then you’ll be slapped with an IRS penalty called the “Failure-to-File Penalty for Late Filing”. In reality, this is one of the least harmful penalties, at just 2%, so it’s not that big of a deal unless you owed the IRS a huge amount of money when your payment failed to go through. If you’re hit with the Dishonored Check Penalty, it is possible to get out of it via penalty abatement, but you’ll be required to explain why the payment didn’t make it through, in writing, and you’ll basically just have to hope that the IRS agrees that it wasn’t your fault. Some of the most important pages that you should review include my Guide to Paying Back Taxes, my Guide to Tax Debt Forgiveness, my Guide to Tax Settlements, my Guide to Tax Resolution Services, my Guide to the IRS Collections Process, and my Guide to the IRS Fresh Start Program. Penalties for failing to file certain forms (like Form 5471) can be as high as $10,000 to $50,000 per form and the failure to file form penalty can be increased by $10,000 per month per form for continued failure to file, so you can imagine how quickly the costs can stack up here. For this tax season only, taxpayers who paid in at least 80% of their 2018 tax bill can escape the underpayment penalty, the IRS announced in late March. Unfortunately, the worst part of the reasonable cause process is that you’ll basically be at the mercy of whoever reviews your case at the IRS, and if they disagree with your argument, then they can simply say “Too bad”, and you’ll still need to deal with the penalties applied to your account. Success Tax Relief specializes in helping taxpayers navigate all types of tax issues, including estimated taxes, audits, applications for installment agreements and offers in compromise. This underpayment penalty can be waived if you meet the following criteria: If you were unable to make your estimated payment because of disaster, death or other unusual situation; If you retired after the age of 62 If you became disabled Anytime that an entity fails to fulfill this obligation, the IRS can hit them with a significant tax penalty. Below is the phone call script I use to negotiate musicians' tax penalties. . If you need IRS Debt Relief, be sure to check out some of the other pages of my site, where I go through each of the IRS’s most popular debt relief programs in detail. You’ll want to use the online penalty appeals tool if and only if: Attempting to use the tool before any of the previous conditions have already occurred will mean you’re wasting both yours and the IRS’s time with your appeals request, and could definitely end up in preventing you from receiving any form of relief in the future. To make it as easy as possible for you to access the information you truly need, feel free to click through the links below to be taken to each specific section covered in this Guide. who fails to make the proper withholding payments, so if you aren’t directly responsible for any of this stuff, then you’re not going to have to face this penalty, but if you are, the important note to realize is that you become personally liable for any deficiencies, and that the penalties can be extreme. Section 6664(c) of the IRC provides that “no penalty shall be imposed . You may even get hit with two different penalties; first, the penalty for late filing, and second, the penalty for failing to pay on time. If you attempt to evade paying taxes, and are convicted, then you’ll be found guilty of a felony and you could be sentenced to up to 5 years in prison, and forced to pay a fine of up to $250,000 (for individuals) or $500,000 (for corporations), plus the costs associated with prosecuting your case. If you received a notice, be sure to check that the information in your notice is correct. How to avoid the underpayment penalty…Safe Harbors. If you can prove to the IRS that they made a mistake in determining your penalty, or that you have new information which proves that you don’t deserve to be penalized, then it’s possible to get the penalty reduced or even removed entirely, which could save you a substantial sum of money. To quickly explain the difference between tax fraud and tax evasion, tax fraud happens when you illegally and intentionally try to evade tax laws or defraud the IRS, while tax evasion occurs when you illegally refuse to pay your taxes, or when you purposefully underpay your taxes by not reporting income or by reporting illegal expenses. If your only income is from self-employment and you anticipate paying at least $1,000 in income/self-employment taxes, then you must pay the estimated tax (1). I’m not going to link to any specific calculator, because they’re easy to find with a simple Google search, but just be aware that these should only be considered to provide an estimate of what you actually owe, and don’t be surprised if the site you visit tries to get you to pay for the use of their calculator either. Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. One nice thing about the IRS and their penalties is that there is a process for appealing a penalty relief request that’s been denied, and the best thing about this process is that it’s fairly simple to start an appeal, because you can do it using the IRS’s Online Penalty Appeals Tool! ), Penalties for Failing to Provide Foreign Information, You experienced a casualty event, disaster, or other unusual circumstance that resulted in it being inequitable to impose the penalty, or, You retired or became disabled during the year the payments were due, and the underpayment was the result of reasonable cause, rather than willful neglect, Requesting a tax deadline extension before your taxes are due, and paying 90% or more of whatever taxes you owe, Showing that you had “reasonable cause” for not filing your taxes on time, Showing that you had “reasonable cause” for not paying your taxes on time, A Failure to File penalty set at 2% for being 1-5 days late, 5% for being 6-15 days late, 10% for being over 16 days late, with the maximum amount of the penalty pegged at 15%, A Trust Fund Recovery Penalty for failing to pay payroll taxes when they’re due, which will be 100% of the unpaid tax (including income tax, social security and Medicare withholdings), An Interest penalty on whatever amount of taxes go unpaid, until they’ve been repaid in full, Administrative Waiver and First Time Penalty Abatement, You have not faced any IRS penalties for the last 3 tax years prior to the year you’re receiving a penalty, You filed all the required returns or requested an extension before the April 15, You have already paid, or have made arrangements to pay, whatever taxes were due (other than the amount you didn’t realize that you owed, and which you’ve been penalized for! If you refuse to file a return, supply information, or pay your taxes as required by law, then you can be found guilty of a misdemeanor and subject to penalties including imprisonment for up to 1 year, and a fine for up for $100,000 (for individuals) or $200,000 (for corporations), plus prosecution costs. Estimates are based on prior results; individual results will vary based on circumstances, including your ability to provide This is a faster, more streamlined approach to the process, because it doesn’t require waiting for an email response and sitting in limbo while things are happening behind the scenes, so for anyone in a hurry, the phone number is probably a better option than the online tool. 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