Tax Penalties & Interest
For many taxpayers, the primary concern isn’t the actual tax owed but the accruing penalties and interest. Over time, these additional costs can cause a minor tax liability to escalate significantly. Many people delay addressing these issues and find themselves overwhelmed. Engaging a tax attorney for “penalty abatement” can be crucial in such cases. This process involves requesting the IRS to eliminate specific penalties.
Misunderstandings or lack of knowledge can sometimes lead IRS employees to impose unnecessary penalties. In such instances, challenging the IRS becomes vital.
Common IRS Penalties
The IRS imposes various penalties, but some of the most prevalent include:
- Late Filing: Not filing your return on time incurs a failure-to-file penalty of 5% per month (maxing out at 25%) of the owed tax.
- Late Payment: Any delay in payment results in a 0.5% monthly penalty, up to 25%.
- Misreporting Tax Liability: Known as the Accuracy-Related Penalty, this penalty, ranging between 20% and 40%, applies when there’s an under-reporting of income.
- Fraud: Deliberate deception can lead to a substantial penalty of up to 75%.
How to Contest Tax Penalties
Successfully contesting IRS penalties requires demonstrating “reasonable cause.” This is determined based on the specific facts and circumstances of each case. Reasonable cause allows the IRS to offer relief from penalties. Potential reasons might include:
- Records being stolen or destroyed
- Family crises, such as divorce or death
- Illness
- Incorrect guidance from a tax advisor
- Extended unemployment periods
- Natural disasters or other uncontrollable events
Since proving reasonable cause for IRS penalty relief is intricate and relies heavily on understanding the relevant laws and guidelines, seeking expertise from a tax lawyer is often vital.
The Importance of Professional Guidance
Todd S. Unger, Esq., LLC offers consultations for taxpayers grappling with tax penalties and related matters in New Jersey and New York. To discuss your situation confidentially with a proficient tax attorney, you can reach out to us at (877) 544-4743.