Type Of Tax Penalties 

In short, there are 5 types of applicable tax penalties:

  • Failing To File A Tax Return: This is the most common audit. 

  • Failing To Pay Taxes. 

 

  • Filing Inaccurate Tax Return. 

  • Negligence & Non-Compliance With Tax Laws.

  • Tax Fraud or Tax Evasion

The Types Of Tax Penalties  

 

Per IRS publication 556, during the examination, the IRS can enforce as many tax penalties to taxpayer who violate the tax laws. Below are some of the most popular tax penalties that go beyond interest and fines. Some of them result in jail time. 

Per IRS publication 594, when taxpayers' tax returns are under examination or audit and taxpayers do not respond timely to IRS letters or satisfy the IRS questions or demands or final tax payment deadlines have passed after, the IRS may proceed with some but not limited to following actions:

  • Tax Liens. The agency can claim legal liens against taxpayer's properties or assets such as homes, cars, bank accounts, business, retirement accounts, Social Security benefits, etc., The liens give the IRS ownership and control of taxpayer's assets. These liens go into all public records and adversely affect credit history of taxpayers.   

  • Tax Levies. When tax liens are in place, the IRS notifies taxpayers at least 30 days in advance to provide a last chance to taxpayers by law for requesting a final hearing to challenge IRS tax levies. After this 30-day period passes, the agency may proceed and seize the assets of taxpayers such as bank accounts, cars, homes, business, boats, properties, etc. and sell them until all debts are paid off. 

 

  • Wages Garnishment. The IRS may continue to tap into taxpayer's current and future income sources. They may take their shares out of taxpayer's paychecks with a significant amount at each payroll until taxes are paid off. They may leave taxpayers small amounts to take home just enough to cover basic living expenses.

The IRS and State Taxing Authorities have enforced other penalties and significant interest amounts to add up on top of the original tax debts. The debts are just compounding with interests and penalties like a running snowball. In some extreme situations, after critical audit cases, some taxpayers' financial lives have been turned upside down.

Under Section § 7201, beside monetary collection, taxpayers may be charged of tax evasion. Tax evasion is willful attempts to hide or fail to report taxes accurately, or the failure to pay taxes. Tax evasion is a felony. If the IRS proves its case for tax evasion against a taxpayer, the penalties can be significant including monetary fines and jail time.