Tax Planning

Taxpayer Penalties 2023

Bradford Tax Institute, January 2023

REASON

PENALTY RELIEF

IRC SECTION

Failure to pay

0.50% of unpaid balance per month; maximum of 25%

6651(a)(2)

Failure to file

  • 5% of unpaid balance per month; maximum of 25%
  • If more than 60 days late, the lesser of $435 or 100% of tax due
  • No penalty if due a refund
  • Failure to file penalty is reduced by failure to pay penalty if both apply

6651(a)(1)

6651(c)(1)

Fraudulent failure to file

15% of unpaid balance per month; maximum 75%

6651(f)

Failure to deposit employment taxes

  • 2% of underpayment if amount is properly deposited not more than five days after due date
  • 5% of underpayment if amount is properly deposited more than five days but not more than 15 days after due date
  • 10% of underpayment if amount is properly deposited more than 15 days after due date

6656(b)(1)(A)

Failure to file information returns / Failure to furnish payee statements

Penalty assessed per information return:

  • $50 if correctly filed within 30 days after required filing date; maximum $500,000 per year ($175,000 for small businesses with gross receipts of $5,000,000 or less)
  • $100 if correctly filed more than 30 days after due date but before August 1; maximum $1,500,000 per year ($500,000 for small businesses with gross receipts of $5,000,000 or less)
  • $290 if correctly filed after August 1 or not filed at all; maximum $3,532,500 ($1,177,500 for small businesses with gross receipts of $5,000,000 or less)
  • Minimum $500 if failure to file or furnish due to intentional disregard of the requirements

6721

6722

Accuracy related penalty

20% of underpayment due to:

  • Negligence includes failure to make reasonable attempt to comply or intentional disregard
  • Substantial understatement of tax, more than the greater of 10% (5% if claiming IRC Section 199A deduction) of actual amount or $5,000

6662

Fraud

75% of understatement due to fraud

6663

Tax evasion

Willful attempt to evade tax is a felony. Maximum fine of $100,000 ($500,000 for a corporation) and/or up to five years in prison

7201

Failure to collect or pay over tax

Willful failure to collect, account for, and pay over tax is a felony. Maximum fine of $10,000 and/or five years in prison.

7202

Perjury and fraud

Knowingly filing or assisting in the filing of a false return or aiding in fraud is a felony. Maximum fine is $100,000 ($500,000 for a corporation) and/or up to three years in prison.

7206

Earned income credit (EIC) claimed, taxpayer not eligible

Error due to reckless or intentional disregard of EIC rules:

  • Taxpayer not allowed to take EIC for two years, even if eligible.

Error due to fraud:

  • Taxpayer not allowed to take EIC for 10 years, even if eligible.

32(k)

First Time Penalty Abatement (FTA)

A taxpayer may qualify for administrative relief from the failure-to-file, failure-to-pay, and/or failure-to-deposit penalties if:

  • there were no filing requirements or penalties for three prior tax years*,
  • all currently required returns were filed or an extension has been requested,
  • and any tax due has been paid.

*The FTA is available every three years provided that the requirements above are met. This is not just available one time. Taxpayers may request the FTA over the phone or written request.

SERVICES WE OFFER RELATED TO THIS TOPIC

The information contained in this post is for general use and educational purposes only.  However, we do offer specific services to our clients to help them implement the strategies mentioned above.  For specific information and to determine if these services may be a good fit for you, please select any of the services listed below. 

\

The 4x4 Financial Independence Plan ˢᵐ

\

The Smart Tax Minimizer (For Consumer and Home-Based Businesses) ˢᵐ

\

The Smart Tax Planning System for Business Owners ˢᵐ

\

Coaching and Consulting

You May Also Like…

Investment Advisory Services are offered through Lifetime Financial, Inc., a Registered Investment Advisory. Insurance and other financial products and services are offered through Lifetime Paradigm, Inc. or Lifetime Paradigm Insurance Services. Neither Lifetime Financial, Inc. nor Lifetime Paradigm, Inc., or its associates and subsidiaries provide any specific tax or legal advice. Only guidance is provided in these areas. For specific recommendations please consult with a qualified, licensed Advisor. Past performance is no guarantee of future results. Your results can and will vary. Investments are subject to risk, including market and interest rate fluctuations. Investors can and do lose money and, unless otherwise noted, they are not guaranteed. Information provided is for educational purposes only and is not intended for the sale or purchase of any specific securities product, service or investment strategy. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER, TAX PROFESSIONAL, OR ATTORNEY BEFORE IMPLEMENTING ANY STRATEGY OR RECOMMENDATION DISCUSSED HEREIN.

This message is intended for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential and exempt from disclosure under applicable law. If you are not the intended recipient, any dissemination, distribution or copying of this communication is strictly prohibited. If you think you have received this communication in error, please notify us immediately by reply e-mail or by telephone (800) 810-1736 and delete the original message.

This notice is required by IRS Circular 230, which regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full "covered opinion." Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS.