Decoding the IRS Accuracy-Related Penalty

IRS Accuracy-Related Penalty

Whenever there is mention of the Internal Revenue Service (IRS), some people have chilling flashbacks of their encounters with the government agency. It is easy to get in the wrong books of the IRS, and the agency is known to reach for its arsenal of penalties in a lot of cases. One such penalty that you should be aware of is accuracy-related penalty. If you underpay the tax that should be reported on your return, you can be subject to an accuracy-related penalty. If you don’t declare all of your income or claim credits or deductions for which you are ineligible, you also risk receiving an underpayment. The IRS will charge 20% or more of a defaulting taxpayer’s underpayment of federal taxes due to reasons such as negligence, substantial understatement of income tax, or other errors on their tax return. If you are facing such a situation, you need to get help from an IRS tax attorney at the earliest. Let’s take a look at the IRS accuracy-related penalty in detail.

What is IRS Code Section 6662?

According to IRS Code Section 6662, the IRS may impose a penalty on taxpayers who underpaid their taxes because of the following “triggers”:

  • Negligence or disregard of rules or regulations
  • Substantial understatement of income tax
  • Any substantial valuation misstatement under Chapter 1
  • Any substantial overstatement of pension liabilities
  • Any substantial estate or gift tax valuation understatement

The IRS uses accuracy-related penalties to help enforce timely payment and filing of annual tax returns. For Code 6662 to be applied, unlike a randomized IRS audit, taxpayer records must meet specific criteria; however, it’s crucial to note that accuracy mistakes are frequently related to audit penalties. If you think you have been wrongfully penalized, consult an IRS tax attorney to get help handling the situation.

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What should you know about reasonable cause exceptions?

An accuracy-related fine cannot be levied against a taxpayer if they can demonstrate that their underpayment is due to a valid reason. It is, however, crucial to understand what a “reasonable cause” means. Normally, the validity of a reasonable cause claim is determined on a case-by-case basis, taking into account all relevant factors, including the taxpayer’s background, education, and experience, particularly with regard to taxes. A taxpayer can satisfy the definition of reasonable cause and be treated as an exemption to the rule if they appear to have operated in good faith but made a mistake as a result of a misunderstanding or straightforward miscalculation. If that is the case, a Fort Worth tax attorney can easily help you get a speedy resolution.

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How does the IRS calculate accuracy-related penalties?

When one of the aforementioned “triggers” causes a taxpayer to underpay their taxes, accuracy-related penalties are applied. Penalties for significant understatement, negligence, and disregard for the law are typically equal to 20% of the tax understatement. A more severe 40% penalty may apply in particular cases, such as where a taxpayer commits a gross value miscalculation. Remember that you should consider this penalty to be an addition to the taxes you owe, which means that you will accrue interest on it in addition to the interest already accrued on the unpaid taxes. To avoid such a scenario, consult an experienced Fort Worth tax lawyer, so they can handle your case.

How to remove IRS accuracy-related penalties?

The taxpayer must be able to demonstrate that they acted in good faith to receive IRS penalty abatement for an accuracy-related penalty. It is advised that taxpayers seek professional tax assistance before moving forward with the accuracy-related penalty abatement process as it can be an extremely complicated. If you are a resident of Dallas, you can seek tax help in Fort Worth. The best IRS attorney in Fort Worth, TX, can assist you in getting relief from accuracy-related penalties.

Final word

The best way to avoid an IRS accuracy-related penalty is to file and pay all your taxes as accurately as possible. It helps to consult an experienced IRS tax attorney. When looking for a tax lawyer in Dallas, TX, you can always count on the Law Offices of Nick Nemeth. Our team of tax attorneys in Fort Worth, TX, can help you to settle IRS accuracy-related penalties, and you can also get a range of other IRS problem resolutions. Simply call (972) 426-2553 or use our Contact Form to schedule an appointment.