Accuracy-Related Penalty

 

An Accuracy-Related Penalty applies if you underpay the tax required to be shown on your return. Underpayment may happen if you don’t report all your income or you claim deductions or credits for which you don’t qualify.

 We apply 2 common Accuracy-Related Penalties to individuals:

Negligence or Disregard of the Rules or Regulations Penalty

Negligence is when you don’t make a reasonable attempt to follow the tax laws when you prepare your tax return. Disregard means you carelessly, recklessly or intentionally ignored the tax rules or regulations.

Examples of negligence include:

  • Not keeping records to prove you qualify for the credits or deductions you claim
  • Not including income on your tax return that was shown in an information return, like income reported on Form 1099
  • Not checking the accuracy of a deduction or credit that seems too good to be true

Substantial Understatement of Income Tax Penalty

For individuals, a substantial understatement of tax applies if you understate your tax liability by 10% of the tax required to be shown on your tax return or $5,000, whichever is greater.

If you claim a Section 199A Qualified Business Income Deduction on your tax return, the penalty applies if you understate your tax liability by 5% of the tax required to be shown on your return or $5,000, whichever is greater.

How You Know You Owe the Penalty

We send you a notice or letter if you owe an Accuracy-Related Penalty. For more information, see Understanding Your IRS Notice or Letter.

How We Calculate the Penalty

In cases of negligence or disregard of the rules or regulations, the Accuracy-Related Penalty is 20% of the portion of the underpayment of tax that happened because of negligence or disregard.

In cases of substantial understatement, the Accuracy-Related Penalty is 20% of the portion of the underpayment of tax that was understated on the return.

Interest on a Penalty

We charge interest on penalties.

The date from which we begin to charge interest varies by the type of penalty. Interest increases the amount you owe until you pay your balance in full. For more information about the interest we charge on penalties, see Interest on Underpayments and Overpayments.

Pay a Penalty

Send us a payment or pay your taxes in full to stop future penalties and interest from adding up.

Remove or Reduce a Penalty

We may be able to remove or reduce some penalties if you acted in good faith and can show reasonable cause for why you weren’t able to meet your tax obligations. By law we cannot remove or reduce interest unless the penalty is removed or reduced.

For more information, see penalty relief.

Dispute a Penalty

If you disagree with the amount you owe, you may dispute the penalty.

Call us at the toll-free number at the top right corner of your notice or letter or write us a letter stating why we should reconsider the penalty. Sign and send your letter along with any supporting documents to the address on your notice.

Have this information when you call or send your letter:

  • The notice or letter we sent you
  • The penalty you want us to reconsider
  • For each penalty, an explanation of why you think we should remove it

If you didn’t receive a notice or letter, get telephone assistance.

Avoid a Penalty

You can avoid a penalty by filing your tax return accurately and on time and paying your tax by the due date. If you can’t pay your tax by the due date, you can apply for a payment plan.

Apply for a Payment Plan

If you can't pay the full amount of your taxes or penalty on time, pay what you can now and apply for a payment plan. You may reduce future penalties when you set up a payment plan.

Get Help

For help with a penalty, call the phone number on your notice or letter. If you didn’t receive a letter or notice, use telephone assistance.

Law and Regulations

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