tax penalties

Criminal Penalties

Various monetary fines and/or imprisonment burden of proof is on the IRS to show guilt beyond the shadow of any reasonable doubt

Appraiser's Penalty

When a valuation penalty arises due to reliance on an appraisal and the appraiser knew the appraisal would be used as part of a tax or refund computation, then the appraiser pays a penalty equal to the lesser of: 10% of the tax understatement, but at least $1k or 125% of the gross income received by the appraiser from the engagement (e.g., the appraisal fee collected)

For accuracy related penalty, negligence includes...

any failure to make a reasonable attempt to comply with the law

Substantial Understatement of tax liability for a c-corp

the lesser of 10% of the tax due but at least $10k and $10M

Failure to pay

1/2% per month (up to 25%) if failure is after deficiency notice, rate is 1% per month can be eliminated if reasonable cause exists for the failure

penalty for undervaluation of an asset

20% of additional tax applies if the valuation is 65% or less than the correct amount penalty is doubled if the valuation is 40% or less than the correct determination only applies to an additional transfer tax liability in excess of $5k

Penalty for Overvaluation of an asset

20% of additional tax that would have been due applies if valuation is 150% or more of correct valuation penalty is doubled if the valuation is overstated by 200% or more applies only when the resulting tax underpayment exceeds $5k or $10k for c-corps

Accuracy related penalty

20% of tax underpayment due to: negligence/disregard of the law substantial understatement of tax liability substantial valuation over/understatement only applies if taxpayer fails to show a reasonable basis for position taken

Penalty for improper refund claim

20% of the disallowed refund waived if taxpayer can show a reasonable cause for the refund claim meant to discourage people from overstating the amount of the refund requested by the IRS

Failure to file

5% per month (up to 25%) minimum penalty is $210 if due to fraud, rate is 15% per month (up to 75%) can be eliminated if reasonable cause exists for the failure penalty is reduced by any failure to pay penalty for the same month

Civil Fraud Penalty

75% penalty on any underpayment resulting from fraud burden of proving taxpayer civil fraud by a preponderance of evidence is on the IRS

Substantial Understatement of tax liability

occurs when understatement exceeds the larger of 10% of amount due or $5,000

Substantial Understatement of tax liability applies unless

the taxpayer has substantial authority for the tax treatment there is a reasonable basis for the position which is adequately disclosed in the return by attaching Form 8275