IRS Penalties: Understanding Your Rights

At any point in time, millions of Americans are facing IRS penalties and interest charges. Unfortunately, it is a common occurrence, especially considering the current state of the economy. But before you settle up with the IRS, make sure that you understand your situation.

Failure to file penalties are one of the most severe penalties that the IRS has in its arsenal. Failure to file penalties are 5% per month (or part of month) up to a maximum of 25%. If you dont have the funds to pay your tax bill, make sure that you at least file your taxes and you can work out a payment arrangement with the IRS later. That way you can at least avoid failure to file penalties.

Failure to pay penalties are less onerous. They are 0.5% of the initial tax bill. Again, these are capped at 25%. These penalties are certainly less than failure to file penalties, but they still can add up over time.

The above penalties can dramatically increase your overall tax bill. I see time and time again taxpayers who thought that the penalties would be minimal and that it was not a big deal if they filed late. This is obviously a big mistake.

The IRS will remove (or abate) penalties under certain circumstances. The taxpayer must show reasonable cause. Reasonable cause normally is the case under the following situations: (1) a serious illness or even death of the taxpayer or his or her immediate family; (2) the taxpayer was unavoidably absent on the filing date; or (3) the physical destruction of the taxpayers residence or business.

The IRS can abate interest charges only in certain situations. These include situations in which there was an unreasonable error or delay by IRS employees or if the late payment occurred in an area that was a presidentially declared disaster area.

If you are facing IRS penalties and interest rest assured that you are not alone. Depending on the situation, you may be able to have the abated. Just make sure that you understand all the rights that have been afforded to you under the law.

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