The Internal Revenue Service routinely asserts penalties. Penalties are a multiple of the additional tax or unpaid tax, and can be very substantial. A list of common tax penalties are, as follows: (1) late tax return filing penalty ranging from 5% – 25%, (2) late tax payment penalty ranging from .5% – 25%, (3) accuracy related penalty (i.e., negligence and substantial understatement of income tax) 20%, (4) valuation misstatement penalty ranging from 20% – 40%, and (5) civil fraud penalty 75%.
In some circumstances the IRS does not properly assert tax penalties. In certain circumstances, IRS penalties can be mitigated or abated by a well prepared tax controversy attorney who can present your case in the correct manner, arguing that the penalty should not be asserted, or arguing that the taxpayer’s tax reporting is based upon reasonable cause.
A tax preparer penalty assessment may subsequently result in a referral to the Director of Practice and a sanctions investigation. A tax preparer should vigorously contest any penalty.
A taxpayer facing the prospect of a penalty assessment should consult with a tax controversy attorney.