Most people who are assessed tax penalties are not deliberately trying to cheat the government but are simply unaware of the complicated tax laws or are unable to pay their taxes due to economic hardship. The good news is, whenever U.S. citizens are hit with tax penalties, they are given an opportunity to appeal and cancel the heavy burden of monetary tax fines that can build up over time.
Common Types of Tax Fines
There are more than 100 tax penalties levied by the IRS. These penalties have become an added source of income for the government. People need to be aware of their rights in penalty cases and pursue any recourse at their disposal to lessen this added tax burden. The most common penalties for taxpayers are ones that deal with delinquency. These include:
- Failure to file taxes
- Failure to pay taxes
- Understatement of income taxes or negligence
- Underpaying taxes
- Paying taxes late
Being aware of the tax deadline and planning ahead for the coming tax season might help the average person avoid some of these penalties. However, there are many instances when something goes wrong. For example, there are reasons for which it might be difficult to file taxes on time, such as if the makes a delivery error, the tax return goes to the wrong IRS office, or a tax advisor gives the wrong tax advice.
There are also many reasons for which someone may not pay their taxes on time. There may have been a fire that destroyed important tax documents, a death in the immediate family, unplanned absence (unavoidable travel outside the country), or loss of employment that resulted in the person being unable to pay.
When a person significantly understates what he owes, the IRS may assess a tax penalty based on the possibility of taxpayer negligence. Negligence is when someone deliberately understates his taxes. The negligence tax penalty is large, and the taxpayer needs to prove that the understatement happened in good faith. Often, a portion of income was legitimately forgotten (due to a missing statement), or a deduction was taken that the IRS does not recognize as valid.
Tax Fraud Penalty or Falsified Withholding
Deliberately understating taxes can lead the agency to assess a fraud penalty. Fraud may be charged if a taxpayer lies to the IRS during an audit or fakes documents, names, businesses, or social security numbers in the effort to prove that an understatement did not happen or to otherwise hide income.
False withholding certificate penalty will be assessed if a taxpayer incorrectly and purposefully filled in the W-4 form so that he would receive a decrease in the taxes withheld from his regular paycheck.
Tips in Dealing with or Eliminating Tax Penalties
When a person has been charged for any of the above common tax penalties, there are some steps that he can take to try to request a cancellation of the fine. First and most importantly, a taxpayer should always try to disprove a charge in writing. It is important to prove with clear evidence that the error was due to a good faith mistake, circumstances beyond the taxpayer’s control, or ignorance of the law.
It is important that taxpayers learn about the particular tax problems they are coping with before trying to pursue their cases. When a person reads about the particular tax mistake for which he is accused, he will be able to formulate a much better defense. It is common to feel overwhelmed, in which case it might be prudent to speak with a tax preparation professional or seek council before writing to the IRS.
Sources:
- Pilla, Daniel J., The IRS Problem Solver. NY: ReganBooks, 2004.
- Daily, Frederick W., Stand Up to the IRS. CA: Nolo, 2009.
Karen Plumley - Karen Plumley is a writer specializing in parenting and education. She works for Parenting NH and the Hippo, NH's most widely read ...
