Tax Penalties And Interest
IRS Tax Settlement
Why Does The IRS Charge Penalties And Interest
According to the IRS, penalties exist to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code. The goal is to ensure that taxpayers properly prepare tax returns, file tax returns timely, and pay tax obligations when due. Interest is a way for the IRS to ensure that the value of taxes due is not depreciated.
IRS Tax Penalties
The IRS has the right to impose penalties against a taxpayer for many reasons. The two primary types of penalties assessed against taxpayers under the tax code if for the IRS to assess penalties for failure to file issues, as well as failure to pay taxes due. In order to avoid issues, it is crucial to file taxes when due and pay all taxes when due. If a taxpayer is not able to file or pay as required, the best option is to file for an Extension to File or an Extension to Pay.
The requirements to file tax returns or pay taxes due on time seem self-explanatory, if a taxpayer wants to avoid tax penalties. However, many times the penalties are assessed when a taxpayer unintentionally fails to file or pay. For instance, if a tax return is not signed, it does not get credit for being filed until such time as the return is actually signed. Therefore, if a taxpayer waits to file taxes until the due date, and the return is not signed, it may count as an unfiled return if the IRS has to request that it be signed after the due date. Another issue is that the post-mark date on the envelope governs for filing purposes. This means that if a tax return or payment is due on April 15, you must make sure that the postmark is on April 15 or prior. Having the postage mark placed on the envelope at 12:01 a.m. on April 16 could lead to a late filing and late filing penalties.
When a taxpayer does incur IRS Penalties, options may still be available to avoid or minimize penalties. For instance, a taxpayer has several options to obtain relief from IRS penalties. The first option is that a taxpayer has the right to appeal the imposition of IRS penalties. Another option is for taxpayers to request an abatement of IRS penalties. A final option is for a taxpayer to seek reassessment of IRS penalties. Though these options exist, it is best to either file and pay ontime, or seek an extension, as sure methods to avoid IRS penalties for failure to file and failure to pay.
If a taxpayer is unable to qualify for Innocent Spouse Relief or Separation of Liability Relief, the taxpayer can still seek Equitable Relief from the IRS. Equitable Relief is a means for the IRS to make a fair and reasonable determination of tax liability for taxpayers that do not qualify for other relief. To be considered for Equitable Relief, the following conditions must be satisfied:
- Joint Tax Return: A joint tax return must have been filed by the individual requesting relief and his/her spouse.
- Tax Obligation: Tax relief can be sought for both understated taxes due and for unpaid taxes due.
- Only Remaining Remedy: To be considered, a taxpayer cannot qualify for Innocent Spouse Relief or Separation of Liability Relief.
- Lack of Knowledge: The individual asking for relief can show that he/she did not know and had no reason to know of the understated tax filing.
- Spouse at Fault: Relief can only be provided on the portion of tax due that is attributable to the other spouse’s liability whether in whole or proportionally.