Some tax debts are avoidable while others are creatures of circumstance. For many people in need of tax resolution, their tax debt was the product of limited funds rather than administrative error. Of course, there are some taxpayers who incur a one-time failure to pay file and pay penalty simply because they waited until the last minute to file their tax return and missed the deadline. However, for the majority of tax resolution clients, their tax problems arose due to limited cash in the face of accruing tax arrears, interest, and penalties. Over time, that tax obligation became insurmountable without the aid of a tax resolution attorney.
If you have tax debt and don’t know where to start, consider calling tax attorney Jin Kim at (916) 299-9913 for a free consultation. Depending on your case, tax penalty abatement can reduce the amount you owe the IRS or The State of California.
If you have tax debt, it’s helpful to understand what comprises your tax liability. Often, it’s a combination of underpayments, penalties, and interest. Here are some of the most common tax penalties faced by individual taxpayers.
Taxpayers are required to file their tax returns and pay their taxes on time. If a taxpayer fails to do so by the due date, the IRS will impose a delinquency penalty. Specifically, Section 6651 of the Internal Revenue Code (IRC) imposes delinquency penalties on taxpayers who fail to:
- File a timely return
- Pay tax reported on a return
- Pay an assessed tax required to be, but not shown, on a return
Failure to Timely File a Return
The failure to file a tax return on the due date, including extensions, calls for the imposition of a penalty of five percent (5%) per month, up to a maximum of five months or twenty-five percent (25%) (IRC Section 6651(a). The delinquency penalty is imposed on the “net amount due,” which is the difference between the amount required to appear on the return and the amount paid on or before the due date, plus the amount of any credit against the tax to which the taxpayer is entitled.
If you failed to file a return on the date prescribed, including the extensions granted by the IRS, or if you fail to file at all, the delinquency penalty will be assessed against you. However, as an exception, you will not be assessed a delinquency penalty if your failure to file is due to a reasonable cause and not to willful neglect.
Failure to Pay Tax or Assessed Tax
The IRS imposes a delinquency penalty on taxpayers who fail to pay the “self-assessed” amount shown on a filed return and on notice and demand for payment of an assessed tax within ten days after the date of the notice. The penalty imposed is 0.5 percent for each month of the delinquency up to the maximum of twenty-five percent (25%), or fifty months.
If you fail to pay income tax when due, the IRS will impose the penalty on the amount on the return as due, less the withheld amounts, estimated tax payments, partial payments, and other applicable credits. But, if you fail to pay a tax demanded in a notice and demand (assessed tax), the penalty will not be imposed, provided that you have paid the tax within 21 calendar days from the notice and demand date or within ten business days if the amount of the notice and demand is $100,000 or more. However, no penalty is imposed in either case if you can show that your failure to pay the tax or the deficiency is due to a reasonable cause and not to willful neglect.