Saturday, December 29, 2012

IRS Tax Penalties

What kinds of penalties are out there?
1.     Failure to file returns § 6404(1)
2.     Failure to pay § 6651(a)-(b)
a.     .5% of the tax on return plus extra .5% for each month In addition to interests, up to 25% percent
b.     Cannot deduct these as a business expense. POLICY: Congress enacted these rules to stop borrowing money from the government.
3.     Accuracy of Filings- § 6662
a.     Negligence of Substantial Understatement
b.     20% of any understated tax on your return
c.     Understating your tax liability
                                               i.     Negligence- Must make reasonable attempt
                                             ii.     Substantiality- Reckless
                                            iii.     Substantial Valuation Problem- overstating how much you gave, doing stuff with assets.
4.     Frivolous Returns- § 6702
a.     Tax protesters and people with positions the IRS deems frivolous
b.     Waste of time. Constitutional position is considered frivolous $5,000 fine
5.     Civil Fraud (Evading Taxes)- § 6663
a.     Use any legal means to reduce tax liability.  Avoiding taxes is fine. Evading taxes is bad.
b.     The government has burden to show more than a taxpayer is trying to reduce tax liability
                                              i.     Clear and Convincing evidence that the deficiency is due to intentional evasion. False material representations. INTENT TO EVADE TAX
                                             ii.     Concealing bank accounts, failure to cooperate, lack of good books and record. Experience and knowledge, more you know, more likely you knew what you were doing.
6.     Failure to Withhold § 6672
a.     Employers who fail to withhold. 100% of the amount not withheld
7.     Promoting Tax Shelters § 6700
a.     100% of gross income derived from the activity
8.     Penalty for aiding other tax payers understate. § 6701
a.     Both provisions are similar.
Criminal Tax Penalties - Not Big Enough to Deter Tax Evasion.
1.     Criminal Fraud §  7201
a.     People who are criminally hiding from taxes
b.     Guilty of Felony because violation of known legal duty
2.     Criminal Lying Penalty § 7206
a.     Fine or up to 3 years in jail.
3.     Exception § 6404(f)
a.     Immunity if you get bad advice from the IRS, you get immunity. Must be acting on good faith
b.     If you didn’t file 5% of the unpaid tax for the year, plus penalty for continued delinquency. Rises if your failure to file is deliberate.

1 comment:

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