Tax Penalties: A Quick Overview

Apr 27, 2017

If a person, partnership, or corporation is selected for an audit, the IRS can impose financial and criminal tax penalties. But don’t worry, affected parties can choose from several payment and abatement plans.

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Most Common IRS Penalties

Failure to File: 5% per month to a 25% maximum. After sixty days the minimum IRS penalty is the lesser of $135 or 100% of tax due.

Failure to Pay: 0.5% per month, not exceeding 25% in aggregate.

Accuracy-Related: 20% to 40% of the underpayment.

Fraud: 75% of the underpayment attributed to fraud.

USC General Fraud Penalties

If a person, partnership, or corporation is fraudulently non-compliant with tax reporting there may also be serious US Code consequences that can include a jail term, fine, or both — plus costs.

Attempt to Evade or Defeat Tax

Maximum prison sentence of five years or $250,000 ($500,000 penalty for corporations) or both, plus prosecution costs.

Willful Failure to File a Return, Supply Information, or Pay

Maximum prison sentence of 1 year or $100,000 ($200,000 for corporations) or both, plus prosecution costs.

Fraud and False Statements

Maximum prison sentence of 3 years or a $250,000 ($500,000 for corporations) or both, plus prosecution costs.

OVDP Penalties

The 2014 OVDP (Offshore Voluntary Disclosure Program) carries a 27.5% penalty on undisclosed assets; 50% penalty if your bank is on the IRS’ “bad bank” list. However, the “Streamlined” OVDP program has a penalty of 5% of the maximum aggregate bank account balance during the disclosure years.

For both of these programs, the above penalties only apply to taxpayers who start the program voluntarily. If the IRS audits a taxpayer and unearths undisclosed foreign assets or bank accounts, the penalties are severe! For undisclosed bank accounts, the typical penalty is $10,000 per year per account.


The 2015 Bipartisan Budget Act can affect partnerships starting in the 2018 tax year. At that time, authorities will asses tax deficiencies at the partnership level.

Liabilities for any penalties will be determined also at the partnership level, rather than individually, as was previously the case. Unless the partnership elects to pass the adjustments through to its partners, the partnership itself is liable for penalties.

The implementation of this new act may require diligent planning with the help of a tax attorney.

A Tax Lawyer Can Help You Get Relief

Taxpayers have a right to challenge IRS decisions in court. A tax attorney can guide you through the process. Gordon Law Group represents many clients with penalty abatement requests and appeals.

If a tax matter splatters in your lap, we can help clean up the mess. Get in touch today to begin the conversation. Let’s sort out your tax tangle.

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