Almost everyone with delinquent taxes has been assessed one or more penalties by the IRS. Some of the more common penalties include:
Failure to file return: 5% of the amount due per month, capped at 25%. This can be avoided by filing the return, even if you can’t pay the balance.
Failure to pay tax reported on return: 1/2% per month, capped at 25%. This can be reduced to 1/4% per month by entering into an installment agreement.
Accuracy penalty for negligence or disregard of rules.
The purpose of penalties is to encourage taxpayers to comply with the tax laws. The IRS may abate (cancel) penalties if you show your failure to comply with the tax laws was due to circumstances beyond your control or that you acted in good faith.
Penalty abatement is generally available in the case of a death, serious illness, or unavoidable absence; you are unable to obtain records through no fault of your own; the IRS gave you incorrect advice; your tax return preparer gave you incorrect advice; you were the victim of fire, casualty, natural disaster, or other disturbance; you were in a official disaster area; or where the IRS made a mistake.
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