The IRS first-time reduction policy doesn't work for this penalty. The IRS only applies this policy to taxpayers who have fines that are based on acts that do not involve calculating the tax on a return, such as failure to file and non-payment of fines. A precision-related penalty will apply if you pay less than the tax that must appear on your return. Underpayment can occur if you don't report all your income or if you request deductions or credits for which you don't qualify.
There is no general reasonable cause exception for the estimated tax penalty; therefore, it is often more difficult to eliminate the penalty, but it is not impossible. The IRS can reduce it if the taxpayer (proves that the IRS improperly collected the penalty or made a mistake) demonstrates that calculating the penalty using a different method reduces or eliminates it, or (proves) that it meets the exemption criteria described in Sec. The precision-related penalty cannot be imposed if the position of the statement being questioned meets certain standards of the tax authority (for example,. It all boils down to facts and circumstances and to demonstrating that the customer exercised the usual commercial care and prudence.
The Journal of Accountancy is now fully digital. . This quick guide explains the process of adding the Journal of Accountancy as a favorite news source in the Apple News app. To obtain a reduction in the IRS penalty for an accuracy-related penalty, the taxpayer must be able to demonstrate that they acted in good faith.
The process of reducing fines related to accuracy can be very difficult and nuanced, so it is generally recommended that taxpayers seek professional tax help before continuing. Seven Penn Plaza, Suite 416New York, NY 10001 The IRS can impose a lot of penalties on taxpayers, but don't worry yet—there may be a solution for you. This blog discusses common IRS fines that are imposed on a regular basis and ways to reduce the penalty or have them completely eliminated. The IRS can reduce it if the taxpayer (proves that the IRS improperly collected the penalty or made a mistake) demonstrates that calculating the penalty using a different method reduces or eliminates it, or (proves that it meets the exemption criteria) (i.e.
A tax professional can save their client thousands of dollars simply by calling or sending a letter to the IRS. Don't forget that if the IRS agent denies your claim, you can always go to the IRS Appeals Office. We may be able to eliminate or reduce some fines if you acted in good faith and we can demonstrate reasonable cause why you were unable to comply with your tax obligations. In fact, in many cases, tax rules require that a taxpayer's request for exemption from the penalty be submitted in writing and even signed under penalty of perjury.
Reducing fines for the first time is an easy card to get out of jail for taxpayers who have a clean record of filing and paying on time, with no prior penalties (other than an estimated tax penalty) for the past three years. The FTA does not apply to other types of sanctions, such as the penalty related to accuracy and statements with an event-based presentation. Penalties for substantial understatement, negligence, and regulatory non-compliance are generally calculated as 20% of the tax understatement. Accuracy-related penalties are imposed when a taxpayer underpays their taxes as a result of one of the above-mentioned “triggers”.
Under the IRS first-time penalty reduction policy, a taxpayer can get a one-time exemption from fines for not filing a tax return or not paying on time. Accuracy-related penalties are used to help the IRS accurately enforce the payment and filing of annual tax returns. Arguing that you thought tax returns were due on May 15 and not April 15, even if a tax professional told you so, is not likely to save you from fines. The two most common IRS penalties are those imposed for not filing a tax return and those that are underpaid.
Trusting the advice of a tax professional is obviously a point that many taxpayers use to try to avoid fines. The reasonable cause exception applies to precision-related penalties under section 6662, which are usually 20 percent of the amount at stake. The same applies to fines for gross overvaluation when requesting charitable contributions (asset deductions). .