Sam Brotman, JD, LLM, MBA December 16, 2013 3 min read

IRS Penalties - Part Two

Accuracy Related Penalties

The IRS may assess an additional penalty for an amount reported on a taxpayer’s income tax return that is later adjusted but results in a tax increase. “This penalty of 20% or 40% of the increase in tax is due in the case of substantial understatements of tax, substantial valuation misstatements, transfer pricing adjustments, or negligence or disregard of rules or regulations” (, “IRS Penalties,” 9/11/2013). Special rules are considered for each type of error where a penalty is applicable.

Penalties and Information Returns

An information return does not require payment of tax. An information return is defined as a type of tax form filed by employers and businesses to report wages and payments, respectively. For example, an employer may file a Form W-2 while a business may file one or more reports using Form 1099. “The penalty for failures related to these forms is a dollar amount per form not timely filed, and the amount of penalty increases with the degree of lateness” (, “IRS Penalties,” 9/11/2013). The maximum penalty for filing a late information return is $50. Many of the information returns are filed electronically. Additional penalties for failure to file a partnership income form (Form 1065, $195 per month per partner up to 12 months maximum) apply; and for failure to file an S Corporation return (Form 1120S).

Penalties Unpaid Withholding Taxes

Employers are required to withhold both income and social security taxes from employee wages. The amounts are then submitted and paid to the government. The employer will incur a “penalty of 100% of the amount not paid over (plus liability for paying the withheld amounts may be collected without judicial proceedings from each and every person who had custody and control of the funds and did not make the payment to the government” (, “IRS Penalties,” 9/11/2013). This rule applies to company employees, officers, individuals, and to companies themselves.

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Sam Brotman, JD, LLM, MBA

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