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Archive for the ‘Tax Penalty’ Category

Three Common Types of IRS Tax Penalties

Around this time of year, many people have filed and forgotten about their 2017 tax returns. But you could get an abrupt reminder in the form of an IRS penalty.

06_2018_irs_800 (more…)

Things to Remember when Considering Early Withdrawals from Retirement Plans

Many taxpayers may need to take out money early from their Individual Retirement Account or retirement plan. Doing so, however, can trigger an additional tax on early withdrawals. They would owe this tax on top of other income tax they may have to pay. (more…)

IRS gearing up for revived private tax collection

The IRS is gearing up to outsource some taxpayer collection accounts to private collection agencies. Legislation passed in 2015 directed the IRS to resume working with private collection agencies. The revived program is expected to operate in a similar manner to past ones, with emphasis on taxpayer protections. (more…)

Latest IRS Data Book gives insight into audit activities

audit_stampThe IRS has issued its annual Data Book for fiscal year (FY) 2015, which provides statistical information on activities such as examinations and collections conducted by the IRS from October 1, 2014 to September 30, 2015. For FY 2015, the Data Book shows the total number of audits conducted by the IRS was 1.37 million, down from the 1.38 million examined in FY 2014. (more…)

President signs bill increasing failure-to-file penalty

President Obama signed in February the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644). The comprehensive trade and customs bill includes an increase in the penalty for failure to file a return. (more…)

Audit rates drop for most individuals; up for top earners, partnerships and S corporations

Tax inspector doing financial auditing

Tax inspector doing financial auditing http://www.vebcpa.com

The overall individual audit coverage rate continued its steady decline in recent years, the IRS reported. The audit coverage rate for total individual returns for fiscal year (FY) 2015 was 0.84 percent, compared to 0.86 percent in FY 2014 and 0.96 percent in FY 2013. In contrast, the audit coverage rate for all types of businesses increased slightly, from 0.57 percent in FY 2014 to 0.60 percent in FY 2015. The Service also reported in February that examination revenue fell as did the number of employees engaged in collection and enforcement work.

Individual Returns

While the audit coverage rate for all individuals fell in FY 2015, the audit coverage rate for returns reflecting income of $1 million and higher increased from 7.50 percent in FY 2014 to 9.55 percent in FY 2015. In comparison, the audit coverage rate for returns showing incomes of $200,000 and higher fell from 2.71 percent in FY 2014 to 2.61 percent in FY 2015. The audit coverage rate for returns reflecting incomes of less than $200,000 dropped the least, from 0.78 percent in FY 2014 to 0.76 percent in FY 2015. As in past years, the number of correspondence exams far exceeded field exam, although the number of correspondence exams fell below one million for the second consecutive year.

Business Returns

S corporations and partnerships saw increased audit coverage rates in FY 2015. The audit coverage rate for S corporation returns rose from 0.36 percent in FY 2014 to 0.40 percent in FY 2015. The audit coverage rate for partnership returns showed stronger growth, from 0.43 percent in FY 2014 to 0.51 percent in FY 2015. However, the audit coverage rate for small corporation returns (assets under $10 million) fell from 0.95 percent in FY 2014 to 0.92 percent in FY 2015. Large corporation returns also experienced a drop in audit coverage, from 12.23 percent in FY 2014 to 11.15 percent in FY 2015.

President signs bill increasing failure-to-file penalty

Showing penalty card

Penalty for Failure-to-File a Tax Return

President Obama signed in February the Trade Facilitation and Trade Enforcement Act of 2015 (H.R. 644). The comprehensive trade and customs bill includes an increase in the penalty for failure to file a return.

Penalty

The failure to file penalty is five percent of the unpaid tax shown on the return for one month, with an additional five percent for each month or part of a month that the failure continues, up to 25 percent. For taxpayers who fail to file their returns more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. The Achieving a Better Life Experience Act of 2014 (ABLE Act) provided for inflation adjustments for certain penalties, including the fail to file penalty, applicable to returns required to be filed after December 31, 2014.

The IRS may abate the penalty for reasonable cause. Generally, this means that if a taxpayer exercised ordinary business care and prudence and was nevertheless unable to file a return, the resulting delay may have been due to reasonable cause. However, every taxpayer’s situation is unique. Some examples of reasonable cause include, but are not limited to, the death or serious illness of the taxpayer or a member of the taxpayer’s immediate family; failure to file resulting from a fire, casualty, natural disaster, or other disturbance; or reliance on erroneous advice from the IRS.

Trade Act

The Trade Act provides that if a return is filed more than 60 days after its due date, then the failure to file penalty may not be less than the lesser of $205 or 100 percent of the amount required to be shown as tax on the return. The increase under the Trade Act is effective for returns required to be filed in calendar years after 2015.