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Tax Penalties: Quick Reference Guide

One of the most dreaded times of the year for many Americans rolls around on April 15, 2009 with the deadline for filing income tax returns. The prospects for filing this year may be even more dim for many due to the current economic downturn and worsening financial and employment conditions.

This article provides a quick reference guide to the various potential consequences of not filing a return or paying income taxes due in a timely and accurate manner. In-depth information on each penalty follows below, or just click on the links to jump to more information.

Timely Filers Who Do Not Pay Total Due: one-half of 1% of the tax owed for each month until tax is paid (25% maximum)

Late Filers: 5 percent of the tax owed for each month late (up to 25%); increased penalties for fraud

Combined Penalties: if both of the above apply): the failure-to-file penalty minus the failure-to-pay penalty

Frivolous Tax Submissions: $5,000 penalty

Mistakes: 20% of the underpayment

Civil Fraud: 75% of the underpayment

Criminal Penalties: civil fraud penalty (75%), plus substantial fines and jail time

Interest: for all late or under-paying filers, interest will compound daily on their unpaid taxes at the federal short term rate plus 3%

Timely Filers Who Do Not Pay the Full Amount Due

If someone files on time but doesn't pay the full amount they owe on time, they will usually have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid from the due date, until the tax is paid in full or a 25% maximum penalty is applied. The one-half of one percent rate increases to one percent if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy.

In some cases, it is not a bad idea to negotiate an installment agreement with the IRS to pay off back taxes. For individuals who file by the return due date, the one-half of one percent rate decreases to one-quarter percent for any month in which an installment agreement is in effect.

The Truth About Frivolous Tax Arguments".


You may have to pay a penalty if you file an erroneous claim for refund or credit. This occurs in circumstances where a taxpayer:

  1. Shows negligence or disregard of the rules or regulations, or
  2. Substantially understates their income tax.

The penalty is equal to 20% of the underpayment, unless the taxpayer adequately discloses a reasonable basis for the way they treated the item at issue, or their position was supported by substantial authority. 26 U.S.C. section 6662.

Civil Fraud

The penalties get significantly worse for intentional underpayments. If there is any underpayment of tax on your return due to fraud, a penalty of 75% of the underpayment due to fraud will be added to your tax. 26 U.S.C. section 6663.

Criminal Penalties

All of the above fall into the category of "civil" penalties, but the most severe penalties filers face are directed toward those who commit tax evasion, fraud, and similar offenses. Individuals who get caught committing tax fraud face the above noted 75% civil penalty, and additionally face substantial fines and jail time.

For example, attempting to evade or defeat tax under is a felony carrying a fine of up to $250,000 and imprisonment for up to 5 years. 26 U.S.C. section 7201. Making false statements on a tax return is also a felony risking the same fine and imprisonment for up to 3 years. 26 U.S.C. section 7206. If you are being investigated for a tax crime by the IRS, it is very important to retain an attorney who is familiar with both tax and criminal matters.


Although not a "penalty" in the traditional sense, a late filer or taxpayer who does not pay the entirety of the amount they owe will have to pay interest. Interest is charged on the amount of unpaid balance, penalties, and interest that has been charged to the tax account from the due date of the return until the date payment is made. The interest rate is determined every three months and is the federal short-term rate plus 3 percent. Furthermore, interest is compounded daily.

With this in mind, it should be noted that in many cases, the funds necessary to pay taxes can be borrowed at a lower effective rate than the combined IRS interest plus penalty rate.

Learn More About Tax Penalties by Talking to an Attorney

Taxes are the source of an incredible amount of stress, especially if you're facing tax penalties and the tax code has been described as one of the most complicated pieces of law in our country. Fortunately, you can contact an experienced tax attorney to discuss how to best manage your tax issues.

You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help

Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.

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Next Steps

Contact a qualified tax attorney to help you navigate your federal and/or state tax issues.

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