Inaccuracies that May Lead to IRS Penalties

Have you recently made an error in your tax return? Was the error intentional or a simple mistake? When did you realize that you made the error? Are you going to be punished? If you are asking yourself these questions, it's important to take a step back and consider your situation. If you have made an error while filing your taxes and are afraid of hearing from the IRS, know what the consequences of your actions may be. After understanding how errors can lead to IRS penalties, taking proactive steps to eliminate or reduce those penalties will be much easier.

The IRS catches every range of error in tax return. However, depending on error, penalties vary. If you have made a simple, honest error, you may receive little to no punishment and forgiveness for your actions. However, if you were fraudulently and knowingly committed a tax error, a large fine may be in store for you. Let's take a look at the top five errors and their resulting penalties.

1. Fraud - If you have made an error in an obvious attempt to construe information regarding your taxes, you may be convicted of fraud by the IRS. While the IRS must have substantial and hard evidence of your actions, if proven guilty, you could see up to a 75% penalty on the unpaid amount.
2. Negligence - If you have made an error on your taxes, but acted in a much less drastic and more careless manner, the IRS will give you a 20% penalty. While you may not have acted fraudulently and intentionally abused the IRS system, you have still acted in disregard for IRS rules. Negligence is defined as a basic lack of care and responsibility that is to be expected of everyone.
3. Understatement - Understating your tax liability will also get you a 20 percent penalty. If you have significantly understated your taxes; significantly being defined as amounting to either $5000 or over 10% of your taxes owed, then you may receive this penalty.
   
4. Overvaluation - Overvaluation, or assigning a higher price to an asset or assets, will fall under the 20% penalty as well. The overvaluation can fall anywhere between 200% and 400%. Anything over 400% will lead to an even larger penalty.
5. Simple Mistake - If you have made any simple or honest mistake when filing, due to not understand a certain form or even mixing up a number, the IRS may forgive you and give you no penalty at all. The mistake must be proven and documented, and addressed with the IRS in a timely manner.
   

Now that you are aware of some of the IRS penalties and corresponding actions, examine your situation and consider your options. If one of the above cases sounds like it may apply to you, you may want to consider consulting a tax professional to find the best penalty relief plan for you.

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