Sam Brotman, JD, LLM, MBA December 16, 2013 4 min read

IRS Penalty Information

Total failure to file a tax return and pay all balances owed will result in the IRS charging an IRS penalty, which is usually “five percent of the tax owed for each month, or part of a month that your return is late, up to five months. If your return is over 60 days late, the minimum for late filing is the lesser of $135 or 100 percent of the tax owed” (“Topic 653”). According to the Internal Revenue Manual’s Penalty Handbook[1], the purpose of penalties, or the assessment thereof, is to encourage voluntary compliance by defining standards specific to compliant behavior, defining consequences for noncompliance, and providing monetary sanctions against taxpayers failing to meet the standard (IRM, “20.1.1.2 Purpose of Penalties,” 8/13/2013). In addition, according to the Internal Revenue Manual, relief from IRS penalties falls under four categories, which include the following: 1) reasonable cause, 2) statutory exceptions, 3) administrative waivers, and 4) Correction of Service error (IRS.gov, “20.1.1.3 Criteria for Relief From Penalties,” 8/14/2013).

An appeal may recommend abatement or non-assertion. When determining an IRS penalty, the IRS generally considers requests from third parties, “including requests from representatives without an authorized power of attorney. While information may be accepted, no taxpayer information may be discussed with a third party unless a valid power of attorney . . . is secured in writing from the taxpayer” (“Criteria for Relief From Penalties”). Organization of the Penalty Handbook is subject to Part 20. Penalty and Interest of the Internal Revenue Manual. Below is a brief outline of the handbook. To view it in its entirety, visit: 20.1.1.1.2, Organization of IRM 20.1, Penalty Handbook here: http://www.irs.gov/irm/part20/irm_20-001-001r.html. References to codes are not included below. Sections of the IRM 20.1 include the following:

Introduction and Penalty Relief

Failure to File/Failure to Pay Penalties

Estimated Tax Penalties (ES)

Failure to Deposit Penalty (FTD)

Return Related Penalties

Preparer, Promoter, Material Advisor Penalties

Information Return Penalties

Employee Plans and Exempt Organizations

Miscellaneous Civil Penalties

International Penalties

Miscellaneous Penalties

Excise Tax and Estate and Gift Tax Penalties

Penalties Applicable to Incorrect Appraisals

There are different types of IRS penalties. The following sections outline those types of penalties for which the IRS charges. Below is an overview of the penalties. You may visit the IRS website or review information housed within the Internal Revenue Manual for more insight into the different types of penalties.

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[1] The direct reference information is as follows: Part 20. Penalty and Interest, Chapter 1. Penalty Handbook, Section 1. Introduction and Penalty Relief. The link to the information is available here: http://www.irs.gov/irm/part20/irm_20-001-001r.html.

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
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