Unless you stand to receive a handsome refund, you probably do not enjoy tax time. After all, not only must you gather financial records, but you also must try to determine how much the Internal Revenue Service believes you owe in taxes. Furthermore, even if you make no mistakes, you may have an audit risk.
In addition to collecting taxes and paying refunds, the IRS regularly issues penalties. These penalties can be both stress-inducing and expensive for those who receive them.
Common types of IRS penalties
The IRS enjoys wide latitude to penalize those who make mistakes when filing or not filing their taxes. In fact, penalties are possible for the following types of conduct:
- Underpayment of taxes by individuals or corporations
- Incorrect information on tax returns
- Lack of a required filing
- Returned tax payment checks
Because the IRS collects revenue, it may come as no surprise to know its penalties are usually monetary ones. How much you may have to pay, however, depends on the nature of your perceived violation. Still, because the IRS charges interest on penalties, your penalty may become more financially burdensome with the passage of time.
While monetary penalties are often the biggest risk of tax-related wrongdoing, some types of malfeasance may lead to criminal charges. If your issue meets the elements of fraud, tax evasion or another criminal offense, you may face prosecution. Upon conviction, of course, you may be at risk of incarceration, probation, fines or other criminal penalties.
Ultimately, if you receive a penalty letter from the IRS, it is critical to address it promptly to minimize your legal exposure.