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  • Home
  • About
    • Ronson J. Shamoun, ESQ., LL.M.
    • Chandara Diep, ESQ., LL.M.
    • Devon J. Arabo, ESQ., LL.M.
    • Brian M. Malloy, Esq.
    • Andrea Cisneros Valdez, Esq., LL.M.
    • Sam Imandoust, ESQ., LL.M
    • Lauren Suarez, ESQ., LL.M.
    • John I. Forry, Esq.
    • Martin Schainbaum, ESQ., LL.M.
    • Kaveh Imandoust, JD, MBT, CPA
    • Joseph Cole, ESQ., LL.M.
    • Christopher Engelmann, ESQ., LL.M.
    • Remy Hogan, Esq., LL.M.
    • Steve S. Mattia, Esq.
    • Dod Ghassemkhani, ESQ.
    • Vincent Renda, Esq.
    • Pedro Bernal, Esq.
    • Sabri P. Shamoun 1938-2023
    • Melanie M. Shamoun
    • Renae Arabo
    • Hilary Dargavell
    • Sandie Portilla
    • Lupita C. Torres
    • Jewell Cornejo
    • Kesia Belford
    • Danielle N. Misleh
    • Judith G. Jeremie, JD
    • Rebecca Shuman
    • Michael Lutzky, CPA
    • Gianna Iskander
  • Practices
    • Tax
      • IRS TAX MATTERS
        • IRS Appeals
          • IRS Appeals Process
          • Contesting an IRS Levy
          • Why Retain RJS LAW for IRS Appeals
          • 4 Tips For Navigating The IRS Rapid Appeals Process
        • IRS AUDITS
          • IRS Correspondence Audits
          • What are IRS Field Audits?
          • Initial IRS Compliance Center Audits
          • IRS Office Audits
          • What happens in an IRS Audit?
          • Taxpayer Rights Under IRS Publication 1
          • IRS Warns Taxpayers About Scam
        • NOTICES
          • IRS Notices
          • IRS Letters
          • FTB Notices
          • Avisos en Español
        • IRS Collections
          • Avoiding and Eliminating IRS Tax Liens
          • Collection Due Process Hearing
          • CP 501 – IRS Notice
          • Failure to file a tax return: What happens?
          • How the IRS calculates interest
          • How to get a tax levy released
          • ACS – Automated Collection System
          • IRS Collections Process
          • IRS Interest Abatement
          • IRS Revenue Officers
          • Jeopardy Assessments and Jeopardy Levies
          • National Tax Agencies
          • RJS LAW Approach to Collections
          • IRS Statute of Limitations on Collections
          • Streamlined Installment Agreements
          • Tax Penalty Abatement
          • Taxpayer Assistance Orders TAO
        • IRS Payroll Tax
          • Independent Contractor Reclassification Audits
          • IRS Forms 940 and 941
          • IRS Trust Fund Interviews
          • Payroll Tax Liability Payment Options
          • Trust Fund Recovery Penalties
        • IRS Wealth Squad
        • Offer in Compromise & Tax Settlements
          • OVERVIEW OF OFFER IN COMPROMISE PROCESS
          • The Offer in Compromise Process
          • Appealing an Offer in Compromise to the IRS
          • How does the IRS evaluate an Offer in Compromise
          • Offer in Compromise and Dissipated Assets
          • Offer in Compromise Requirements
          • Pros and Cons of an Offer in Compromise
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          • Offer in Compromise Alternatives
          • Actual IRS Offer in Compromise Results
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          • California Department Of Tax And Fee Administration – CDTFA
        • California State Tax Matters – California Franchise Tax Board | FTB | EDD
          • California Residency Audits
          • Discharging State Income Taxes in Bankruptcy
          • State Tax Practice – Outside of California
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        • Criminal Investigation Division
        • IRS Criminal Investigation Division Tactics
        • Criminal Tax Defense – Tax Crimes
        • Currency Transaction Records & Suspicious Activity Reports
        • IRS Methods of Proof: Tax Fraud and Evasion
        • Methods IRS Agents Use to Locate Assets
        • IRS Special Agent Visits
        • Are You a Criminal Investigation Target?
        • Criminal Tax Attorney vs. White Collar Defense
      • CORPORATE TAXES
      • TAX COURT LITIGATION
      • Innocent Spouse Relief
    • International Tax
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    • Trust Litigation
    • Trust, Estate & Probate Litigation
    • Trust & Estate Administration
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      • Bankruptcy (FAQ’s)
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      • Landlord Tenant Law
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  • Tax Institute
    • 10th Annual USD School of Law – RJS LAW Tax Institute
    • 9th Annual USD School of Law – RJS LAW Tax Institute
    • 8th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 28th, 2023
    • 7th Annual USD School of Law – RJS LAW Tax Controversy Institute – July 15th 2022
    • 6th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 5th Annual USD School of Law – RJS LAW Tax Controversy Institute
    • 4th Annual USD School of Law – RJS LAW Tax Controversy Institute
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How the IRS Calculates Penalties and Interest?

IRS Penalties and Interest | RJS LAW | Best Tax Lawyer San Diego

IRS Penalties and Interest

The obligation to pay taxes becomes even more burdensome when accompanied by penalties and interest. The Internal Revenue Service (IRS) imposes tax penalties for various reasons, such as failure to file tax returns on time, inaccurate tax returns, or failure to pay owed taxes. If you find yourself facing an IRS penalty and interest, it is crucial to understand how the IRS calculates penalties and interest, and the necessary steps to take and to act promptly.

Upon being charged a penalty by the IRS, you will receive a notice through mail. It is particularly important to keep the IRS informed of any address changes, as the notice will be sent to the most recent address on record. Before opening the penalty notice, ensure it is addressed to you or your business. Upon opening the notice, verify the information matches your own. The penalty notice should specify the type of penalty incurred. In case the type of penalty is unclear, refer to the identification number located in the top right corner of the notice. By doing a quick internet search of the identification number, you can gain a clearer understanding of the purpose of the notice.

Receiving a penalty notice may be nerve-wracking, but it is important not to panic. If possible, it is advisable to consult a tax attorney who can provide further clarification on the penalty, explain its implications, and discuss the appropriate course of action. When speaking with an attorney, make sure to provide details such as the penalty amount, the specific type of penalty, and the pay-by date mentioned in the notice.

If you are unable to consult with an attorney, contacting the IRS directly is the next step. Although it may be intimidating to communicate with the agency charging the penalty, it is crucial to inform the IRS about receiving the notice. Responding to the notice promptly will help minimize additional interest or penalty charges and preserve your right to appeal if you disagree with the penalty.

The IRS imposes different penalty rates depending on the type of penalty. For instance, the Failure to Pay penalty is 0.5% of the unpaid taxes per month or part of a month, while the Failure to File penalty can reach up to 5% per month. Fortunately, the IRS does offer some relief. The penalty amount cannot exceed 25% of your unpaid taxes. By negotiating with the IRS and establishing a payment plan, you can reduce your penalty rate to as low as 0.25% per month.

The IRS also charges interest on unpaid liabilities, including the tax, penalties, additions to tax, or interest itself. The notice will indicate a “pay by” date. If you agree with the penalty amount and wish to quickly settle it, making the payment by the specified date will prevent the accrual of interest. The IRS establishes a new quarterly interest rate each year. Currently, the interest rate for individuals with tax underpayment is 7%, but this figure is subject to annual change. According to 26 USC § 6622, interest is compounded daily.

If you disagree with the penalty and seek to dispute it, hiring a tax attorney is the next recommended step. A tax attorney can guide you through the complexities of your case and negotiate with the IRS regarding the penalty and interest charges. Several avenues for penalty relief exist, such as First-Time Penalty Abatement and Administrative Waiver, Reasonable Cause relief, or a Statutory Relief Exception. The type of relief you qualify for depends on the specific penalty and your current penalty status. It is important to note the IRS cannot reduce or eliminate interest on a penalty until the penalty itself is reduced or eliminated.

After receiving an IRS penalty, it is important to avoid incurring additional penalties in the future. To achieve this, several steps can be taken. First, if your taxes are complex or if you lack confidence in filing them on your own, seek assistance from a competent Certified Public Accountant (CPA). CPAs can provide valuable guidance in ensuring accurate tax filings, identifying eligible deductions, and addressing any tax concerns. Second, ensure that you file your taxes on time each year. If necessary, you can request an extension to file, as the IRS prefers granting extensions over taxpayers failing to file altogether. Third, ensure that you pay the correct amount of taxes and confirm the payment is successfully processed. While this may seem obvious, many individuals either make partial payments or neglect to verify the payment, leading to complications later.

RJS LAW is home to qualified and experienced tax, tax planning, estate and trust, and international tax attorneys who are available for a complimentary consultation. Please feel free to contact RJS LAW online or at (619) 595-1655.

Written by Marley Smith-Peters

Filed Under: IRS Penalties, Penalties for Filing Late Tagged With: irs penalties, IRS Penalties and Interest, Penalties and Interest

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