The IRS has many different penalties they can place against taxpayers if they believe you have a balance due after tax day. If you find yourself with a large balance due to the IRS, FTB, EDD, or SBOE, these agencies will impose high percentage penalties on the balance due, and they may begin garnishing your wages and/or place liens and levies against your assets. If you find yourself in a situation where a taxing agency has garnished your wages or put a lien on a bank account, you may want to consult a tax attorney to see what your options may be. If you are unable to pay the full amount you owe, in some cases an Offer in Compromise can settle this debt for less than what is owed, or you can be set up on a payment plan to pay what is owed in installments. An experienced tax attorney would be able to help you explore the available options and guide you through the process.
While there are many different interest penalties involved with balances due depending on the collecting tax agency, the IRS’s interest calculations are mostly straightforward. Once the IRS has received your return, they check all US tax returns for mathematical accuracy. If they find an error in your return and you have either overpaid or underpaid your taxes, they will send you a notice. If you have received a notice and are looking for more information about what it means, we have compiled a list of IRS notices which may be helpful. For a comprehensive list of notices sent by the IRS, please click here.
If the IRS finds that you have a balance due, they can charge interest on the unpaid tax, determined by the balance due from the date of the return to the date of the payment. This interest rate, determined quarterly, is the combination of the federal short-term rate plus 3% and is compounded daily. When you file your return, if you do not pay all of the balance due you will be charged a late payment penalty which is .5% of the tax owed for each month, or part thereof, until the tax is paid in full, with a maximum penalty of 25%. This half percent penalty will increase to 1% if you have failed to pay your balance in full after 10 days have passed. This 10 day period is also the maximum time for the IRS to submit a notice of intent to levy. If you file your return by the due date, your penalty will be reduced from .5% to .25% for all months which an installment agreement is in effect.
The interest on any amount owed to the IRS adds up quickly so it is important to have it resolved as quickly as possible. The staff at RJS LAW is experienced in Offer in Compromise and payment plans as well as a wide variety of other tax controversy issues, both civil and criminal, and we would be happy to help you with whatever situation you may be in.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.