What are the most common IRS tax penalties that apply to an individual taxpayer?
There are usually 5 most common tax penalties that apply to an individual taxpayer and these are as follows:
1. Failure to File a Return
The failure to file penalty is imposed to an individual taxpayer when the required tax return is not filed on or before its due date (Section 6651(a)(1)). This penalty is imposed "when the failure to file is considered to be due to willful neglect and not because of any reasonable cause."
2. Failure to Pay Tax
The penalty for failure to timely pay the individual income tax due is assessed under IRS Code Section 6651(a)(2). This penalty is not assessed if "there is reasonable cause and no willful neglect."
3. Accuracy-Related Penalty
The accuracy-related penalty penalty can only be assessed when a tax return has been filed and covers "negligence, a substantial understatement of tax, and a substantial valuation misstatement."
4. Civil Fraud Penalty
According to the IRS, "when there is an underpayment of tax, a penalty may be assessed on the portion of the underpayment that is attributable to fraud." However, to be considered fraud, it must have been intentional and not simply due to an oversight. The IRS must prove there is fraud by clear and convincing evidence.
5. Estimated Tax Penalties
If an individual taxpayer has an underpayment of any installment of his estimated tax due, a penalty is assessed under Section 6654. This penalty can be abated where the tax due is less than $1,000, there was no tax liability for the preceding tax year or where the taxpayer has experienced an extreme hardship condition.