Contact us online for a free consultation today! This is the most important part of the tax penalty process, because typically, it’s the one that ends up costing you the most money, especially if your taxes or penalties go unpaid for a long period of time. The Dishonored Check Penalty is calculated at an amount of 2% of the total amount of the check, but if your payment is less than $1,250, then the penalty will be $25, or the amount of the check itself (whichever is the lower amount). One of the biggest, yet most misunderstood, is the defense that a tax position was based on reasonable cause. If not, I would be extremely hesitant to claim the waiver, ESPECIALLY if their overall tax rate went down. Here’s how it works – whether or not you filed on time, if you didn’t pay your taxes in full by the original April 15th deadline, then the IRS will send you a bill in the mail, via certified mail, which details the exact amount of money you owe, and with a new deadline for paying up. 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. Reduced by the “failure to pay” penalty amount for any month where both penalties apply 3. Go here for details about how to fill out Form 843. ), 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). In 2009, the IRS realized that this was a huge problem so they created the Offshore Voluntary Disclosure Program (abbreviated OVDP) which allows you to voluntarily get back into compliance with IRS rules. If you do get hit with an underestimated quarterly tax payment penalty, then the good news is that there are two ways to get the IRS to waive the penalty by explain that you didn’t make a requirement payment amount because: If you can’t make either of the claims above, then you’ll be forced to pay the penalty. This Guide walks you through each type of IRS tax penalty, clearly explaining when they’re triggered, how much you’re penalized, and what you can do to avoid having to actually pay the penalty (yes, it IS possible to get out of paying IRS penalties!). Sometimes, excise taxes require manufacturers or retailers to purchase tax stamps or other proof that they’ve collected an advance payment of the tax on the goods and services they sell. Finally, you won’t be assessed a Dishonored Check Penalty if you placed a stop payment order on the check you sent the IRS, so if you did that, then get hit with the penalty, you’ll need to provide the IRS with a copy of your stop payment request, in addition to your request for penalty relief, and you may be able to get the penalty removed. I’ll explain the late filing penalty below, but the penalty for late payment is typically 0.5% per month of your unpaid taxes, which gets applied for each part of a month that your taxes remain unpaid, and which starts accruing the day after your taxes are due. Basically, you’re only going to get hit with this penalty if you or your tax preparer make a major mistake in your return, and if the IRS thinks that you did it on purpose in order to get out of paying the taxes you truly owed them. How much do you know about the IRS’s Fresh Start Program, or about the IRS’s Tax Debt Forgiveness opportunities? To save you some time if you don’t need all the details, here’s a simple breakdown of how the process works – the IRS charges interest on any unpaid balance, according to the following rules: To make sure you don’t turn your annoying tax penalty into an absolute nightmare, you’ll want to be absolutely certain that you pay your tax debt and penalties off as quickly as possible, otherwise the interest rules outlined above could turn your small debt into a massive one that becomes virtually impossible to ever pay off. Dear IRS, no penalties please! People found “not willful” face a much smaller potential issue, because the IRS offers something called the “Streamlined Filing Compliance Procedures” or SCFP Program, which is essentially the best option for anyone with unreported foreign assets, and which carries much smaller penalties. If you file your return more than 60 days after its due date, you’re going to face a minimum late filing penalty of either $135, or 100% of the unpaid taxes, whichever is smaller. Chapter 7 Bankruptcy Forms: Everything You Need To Know. This tool was created to help the IRS quickly process any mistaken penalty relief rejections, and it gives you a second chance on applying for penalty abatement, but it requires providing additional documentation or at least reasoning for why your denial should be reversed. The IRS will waive an underpayment penalty if you were unable to make a payment because of a casualty, disaster or other unusual circumstance. If you want to file an appeal of the penalty abatement rejection, but don’t want to use the online appeals tool, then you also have the option of calling the IRS directly to make your request over the phone. Substantial Understatement Penalty – a penalty assessed if you forgot to report some income on your tax return and then the IRS finds out about it. These are the federal and state income taxes that are supposed to be withheld from employees pay and instead sent to the IRS or state taxing body, like FICA taxes (Social Security and Medicare), Federal unemployment taxes, and State unemployment taxes. Now, getting back to the penalties themselves, on the personal income side, which applies to the group of people who have hidden information about offshore accounts, international earnings or inheritances, there are two types of potential penalties: one for “willfully” hiding the information, and one accidentally hiding it. Can the IRS Seize Your Bank Account Without Any Notice? 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