The Internal Revenue Service in United States which is responsible for the collection of taxes also imposes many types of penalties on taxpayers. These penalties come into play when some situations arise such as non-payment of tax after the due date. In a similar way, the IRS implies penalties associated with accuracy according to the tax laws in the country.
A 20% penalty is collected from the taxpayers in case of underpayment of taxes as a result of some pre-defined situations.
Here are some circumstances in which these penalties apply to the taxpayer:
- Negligence of some points such as failing to comply with the provisions of the tax laws, exercising reasonable and required care while preparing tax returns and to keep necessary records and books in a proper manner.
- Ignorance of rules and regulations – If a taxpayer is careless or reckless about the rules and regulations of taxes and intentionally disrespects them in any way; he is liable to an IRS penalty related with accuracy.
- Understatement of taxes – Understating the income tax substantially is another situation where the accuracy related penalties apply. In case a taxpayer pays very less taxes considering the income and if found guilty, the 20% penalty is imposed upon the person.
The penalty can also increase to 40% of the tax amount from 20% if the level of negligence, disrespect of rules or tax understatement is high as decided by the IRS. In many cases it may happen that these penalties have to be paid by the taxpayer due to some unnoticed or non-intentional breaking of rules. There is a chance in this scenario that the IRS waives off the penalties imposed in such ways if a genuine appeal is made by the taxpayer on the basis of some reasonable cause.