IRS Tax Penalties Tips

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Is there a penalty for not reporting my social security number?

Failure To Provide Your Social Security Number

There is an IRS tax penalty for situations where you do not supply your social security number on tax returns. This applies to both you and any dependents you are claiming on your income tax return. You must include all applicable social security numbers. If you do not, the IRS penalty will be $50 for each failure.

Another situation in which you will be penalized by the IRS involves failing to give your social security number to a third party (such as a bank, or other financial institution) when it is required on a statement, return, or other documents. This is another situation where you will be assessed a $50 penalty by the IRS.

This is a perfect example of why it is important to double-check your income tax return prior to submitting to the IRS. Make certain you include all of your required social security numbers on your income tax return.

If you can show the IRS that the reason you failed to supply a social security number was due to a reasonable cause and not willful neglect, you will not be penalized.

What is an example of a tax evasion case?

Tax Evasion Case Examples

Here are a couple of examples of tax cases involving the topic of tax evasion. They are actual tax evasion cases. The transcripts are taken directly from the IRS website to help you understand the consequences and situations. Remember, tax evasion is considered a criminal penalty, which could involve prosecution and incarceration.

On October 19, 2006, in Grand Rapids, MI, Dr. Thomas William Minguske , a dentist, was sentenced to 12 months and one day in prison to be followed by three years of supervised release and ordered to complete 150 hours of community service in each year of supervised release. In addition, Minguske was ordered to pay $132,042.65 in restitution to the Internal Revenue Service (IRS). Minguske pleaded guilty on May 25, 2006, to information charging him with one count of tax evasion for the tax year 2001. The information charged that in 2001, Minguske had gross income in excess of $100,000 and that he had failed to file a federal income tax return reporting his income to the IRS. It further charged that Minguske had utilized a sham trust to conceal his income from the IRS. Testimony during the sentencing revealed that Minguske had stopped filing federal income tax returns in 1992 and had established a sham trust in 1994 to conceal his dental practice income from the IRS. Minguske had obtained the trust through an individual named Barrie Konicov who is currently serving an 87 month prison sentence for violations of the Internal Revenue Laws.

On November 16, 2006, in Erie, PA, Ronald J. and Carol A. Kapala were sentenced for conspiring to defraud the United States by impeding and impairing the lawful functions of the Internal Revenue Service. Ronald Kapala was sentenced to 30 months in prison to be followed by three years of supervised release and ordered to pay a $100 assessment. Carol Kapala was sentenced to three years probation and ordered to pay a $300 assessment. According to the indictment, the Kapalas used a variety of schemes to attempt to obstruct the IRS in the collection and assessment of income taxes including failing to file income tax returns from 1990 through 1998 and 2002 through 2004; attempting to conceal their construction business activity through the use of nominee names; disguising ownership of assets by transferring them out of their names; forming a bogus tax-exempt religious organization for the construction business in the name "Mission Builders," and making fraudulent claims with the IRS concerning their obligation to pay federal income taxes.

What is tax fraud?

Tax Fraud Penalty

By willfully providing the IRS with fraudulent information on your tax return, you are taking part in a potentially criminal penalty situation. Depending upon the severity of the fraudulent information, you may be facing court dates, restitution, and possible imprisonment.

In a situation involving your tax return containing any underpayment of tax due to fraud, the IRS will penalize you a hefty 75% of the underpayment tax amount due.

If you file a joint income tax return, you need to know that this IRS tax fraud penalty (involving underpayment of tax) does not apply to your spouse unless, of course, your spouse is a party to the fraud committed.

What is tax evasion?

Tax Evasion

Tax evasion is an illegal act under the IRS tax law. When you partake in any of the following activities, you are committing tax evasion:

  • Knowingly not reporting income,
  • Underreporting income, or
  • Providing false information to the IRS which results in improper income reporting, or
  • Deliberately underpaying taxes
  • Understating a reportable transaction
  • Substantially understating your taxes. This involves having the amount of your income taxes on your return being substantially less than the actual tax amount that you owe the IRS.
Whenever you are involved in tax evasion, in general, the severity of the action will determine whether you face an IRS tax evasion penalty or a criminal action case. For instance, substantial transactions will more likely face criminal action whereas a smaller amount transaction will face a penalty. That is a general statement. The entire subject area of tax evasion can be complex with varying factors determining what treatment the IRS will give it.

As can be seen, in order to commit tax evasion, you must not be using any good faith. Plus, you had every intention of committing this crime. You are exhibiting a blatant disregard for the IRS tax laws. A blatant disregard consists of being reckless, careless, or having intentional actions.

The penalty for tax evasion is criminal in nature. This means that you may be facing criminal prosecution for it.

Is there a penalty for paying taxes late?

Late Tax Penalty

There are a couple of penalties that fall under the ‘late tax' category. One involves your tax return filing, the other involves paying your taxes.

Filing. The most common occurrences for the IRS to assess a penalty is for failure to file a tax return by the due date (on time). This IRS penalty is known as the ‘failure to file' penalty. Whenever you fail to file your tax return by the due date (usually April 15), the IRS may penalize you. It is usually 5% of your unpaid tax bill.

In addition, if you file your return later than 60 days after the due date (or an extended due date, as in the case of an extension), there is a minimum penalty of $100 or 100% of your unpaid tax bill. You will not be assessed this penalty, however, if you can show the IRS that you did not file on time due to a reasonable cause. A reasonable cause means that you failed to file your tax return on time for a reason other than willful neglect. For instance, you were hospitalized.

Payment. The other late tax penalty involves paying your taxes after the due date. Here, the IRS will penalize you anywhere from ½ to 1% of your unpaid tax amount. The amount accumulates with each month, or partial month that your taxes remain unpaid.

By showing the IRS that there was a good reason for you not paying your taxes on time (such as hospitalization, losing a job, etc.), you will not be assessed this IRS penalty.

If you filed for an extension and you paid at least 90% of your taxes due with the extension application, you will not be charged a late paying penalty. There are other requirements regarding extensions that must be met, also.

What is a frivolous return?

Filing A Frivolous Return

A frivolous return is one that does not contain enough information to calculate any tax. Or, the tax return can contain information that obviously shows the tax being claimed is erroneously incorrect. The IRS enacted this penalty in an attempt to lower the incidence rate of tax protest activities.
Tax protest activities include:

  • Protesting military expenses by claiming unallowable deductions
  • Deliberately using the incorrect Tax Table to calculate taxes
  • Submitting tax forms that were improper and/or not in order
  • Obviously inconsistent information found on tax returns. (Like claiming one exemption, but listing 50 dependents).
  • Crossing out or altering the printed tax form information.
  • Interfering with the administration of federal income tax laws
  • Deliberately delaying the processing of your income tax return
What is unique about this tax penalty is the fact it is the only one not based on your tax liability. If you are found filing a frivolous return by the IRS, you will be assessed the penalty immediately. This penalty is added to any other penalty as required by the IRS law. And, you may have to pay $500.

Even if you protest the tax penalty, the IRS requires that you pay it when you receive notice of it.

What is the IRS penalty for not filing my tax return?

Failure To File A Tax Return

Otherwise known as a ‘failure to file' penalty, you will be assessed this tax penalty whenever you fail to file your income tax return by the due date. The penalty amount, in general, is 5% of the total tax amount not paid by the due date. Extension dates are not taken into consideration. It is from the original due date of your income tax return (usually April 15).

This penalty accumulates and is applied for each month, or part of the month, that your income tax return is late. It cannot exceed 25%.

However, if you file your income tax return late due to fraudulent reasons, there is a 15% penalty for each month, or partial month, that your return is late. The maximum penalty is 75%.

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