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Dealing with the IRS can be a daunting task for any California resident. A tax liability can arise out of a variety of situations and there several different types of tax penalties that the IRS can impose on a taxpayer. An experienced California tax law attorney can help work with the IRS to reduce or eliminate penalties. The abatement of penalties may mean a significant reduction in the overall tax burden of an Orange County taxpayer because penalties can cause a tax debt to spiral out of control.

Some of the most common penalties that the IRS imposes are for late filings and late tax payments. The IRS may issue a 5 percent per month penalty on late filings for up to 25 percent of the total tax liability. It is prudent for a taxpayer to file a tax return on time even if they cannot pay the taxes because filing late penalty is based on the tax obligation owed on the tax due date without regard to any extensions.

If a taxpayer files a tax return with an outstanding tax obligation the IRS may assess a failure-to-pay penalty. This penalty is 0.50 percent of the outstanding tax obligation and is charged monthly. The late payment penalty also does not take extensions into account.

Another common IRS tax penalty concerns the underpayment of estimated taxes. The calculation of the penalty is complicated although tax software can usually calculate it. A form 2210 must be filed with a tax return to determine the penalty amount.

In our next post we will discuss accuracy related penalties, which are also routinely charged to California taxpayers.

Source: Fox Business, “Breaking Down IRS Penalties: What they Mean and How to Proceed,” Bonnie Lee, Oct. 6, 2011