Tax Tip of the Week | No. 398 | A Review of IRS Penalties
Tax Tip of the Week | March 15, 2017 | No. 398 | A Review of IRS Penalties
Many people assume that the IRS will not impose penalties if you weren’t actually trying to cheat on your taxes. Taxes are complex, and mistakes happen. But the burden is on you to show that you acted reasonably (such as relying on professional tax advice). If you can’t, you will probably end up with penalties.The size of penalties varies, but often they are 25% of the outstanding tax liability. Higher penalties or even criminal prosecution is possible. The burden can be placed on you to prove you are right or that your mistakes were innocent. If the IRS believes you were trying to cheat, you could face a 75% penalty or even criminal prosecution. Most criminal tax cases start with routine audits. Innocent mistakes can often be forgiven if you can show that you tried to comply and got some advice.Everyone has heard that “ignorance of the law is no excuse”. On many key tax subjects, the IRS says that with hardly any effort, you could easily learn the IRS requirements. The tax laws draw the line between non-willful and willful. Willfulness can be shown by your knowledge of reporting requirements and your conscious choice not to comply. Willfulness means you acted with knowledge that your conduct was unlawful—a voluntary, intentional, violation of a known legal duty. Watch out for conduct meant to conceal, such as:- Setting up trusts or corporations to hide your ownership.- Filing some tax forms and not others.- Keeping two sets of books.- Telling your bank not to send statements.- Using code words over the phone or in written instructions.- Cash deposits and cash withdraws.Before conducting any actions, ask yourself if your explanations pass the “straight face test”.Questions, call us BEFORE you do something—not AFTER!You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504. Or visit our website.Rick Prewitt – the guy behind TTW...until next week.