© by Robert G. Nath, Esq.

1. How does the IRS figure penalties?
   
   The most common IRS penalties are calculated on the amount of tax that is due but unpaid. For example, if you file an income tax return late, the law says you must pay 5% per month (up to 25%) of the “net amount due." (So if there is no net amount due, there is no penalty.) The other common penalties are late payment (1/2% per month at first, then increasing to 1%), estimated taxes, and bad check penalty. For businesses, the most common penalties are for failure to pay over the payroll taxes.
   

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2. How can penalties be avoided or abated?
   
   Generally, you must show “reasonable cause” and/or "ordinary care and prudence" in order to avoid or abate penalties. These are shown by a full presentation of all facts and circumstances. An example is a serious illness that prevented you from filing a tax return on time. Another might be a severe, unexpected cash flow crunch (such as from a natural disaster or terrorist attack). However, be aware that the Internal Revenue Manual and hundreds of cases have interpreted these phrases. Each type of penalty comes with its own standards that must be explicitly addressed, in detail.
   

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3. Does the IRS charge interest on penalties?
   
   Yes. In fact, the law requires that interest be charged on tax, and on penalties, and on interest. This “interest on interest” feature arises because interest is compounded daily.

Articles by Robert G. Nath On-Line:

FAQs on IRS Procedures

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Robert G. Nath has focused on IRS matters for over 30 years. He holds degrees from Yale, the University of Pennsylvania, and Georgetown University. After clerking for a federal judge, Mr. Nath litigated tax cases for 8 years with the Tax Division, U.S. Department of Justice. Since 1984, he has been in private practice, representing individuals, entities, accountants and attorneys before the IRS and in court in tax collection, audit and tax litigation matters. Mr. Nath's book, "The Unofficial Guide to Dealing with the IRS" (Macmillan), was first published in 1997. He has been quoted in national media on tax procedure matters and has also appeared on radio and television programs. He has been an editor of professional journals and his articles have appeared in law reviews and other legal periodicals. Mr. Nath is a former U.S. Army Reserve Green Beret officer.
Note: Mr. Nath’s cases normally involved total tax liabilities of $100,000 or more.
Click here to contact Robert G. Nath.

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