What sort of penalties does the IRS have?

Besides criminal penalties (discussed in an earlier post), the IRS also has the power to issue and assess civil penalties on taxpayers for various reasons.  The following is a list of the most common and most used civil penalties by the IRS:

1. Failure to file a tax return – Results in an additional 5% tax of the amount of the original tax required for every month a tax return is not filed.  The month begins the day after the tax return is due.  However, the penalty cannot exceed 25% of the original tax amount.
2. Failure to pay a tax – Results in an additional 0.5% tax of the amount of the original tax required for every month the tax is not paid.  The month begins the day after the tax return is due.
3. Fraudulent failure to file a tax return – Results in an additional 15% tax of the amount of the original tax required for every month a tax return is not filed.  However, the penalty cannot exceed 75% of the original tax amount.  This is usually applied when there is some sort of intent to evade a tax by a taxpayer.
4. Minimum delinquent penalty – Results in a minimum of a $100 penalty when there is a late tax return filed 60 days or more late and no other penalties apply.
5. Negligence – Any failure to make a reasonable attempt to comply with the tax laws results in a 20% additional tax of the amount of the original tax required.
6. Substantial understatement – Any failure to report income by 10% of the tax required to be shown or by $5,000 results in a 20% additional tax of the amount of the original tax required.
7. Gross valuation misstatement – Any failure to report income by 40% of the tax required to be shown results in a 20% additional tax of the amount of the original tax required.
8. Fraud – Any fraud on the part of a taxpayer results in an additional 75% tax of the amount of the original tax that is attributable to the fraud.