If you fail to pay your back taxes, it can result in IRS penalties, and in turn interest that can compound over years and make your tax debt substantially larger than it initially was. Non-payment of this debt can then result in even more IRS penalties and interest, a levy on your wages or bank account, a lien against your property, or even a seizure of your assets.
IRS penalties can be applied for filing your tax return late or for paying your due tax late. The IRS penalty for filing late is generally 5 percent each month, or partial month, and can be up to 25 percent of the amount due on your tax return.
The IRS penalty for paying late is 0.5 percent per month, up to 25 percent of the unpaid amount that is due.
There are some situations and circumstances in which you can have your IRS penalties abated or eradicated either partially or in full for one tax year or multiple tax years. To submit this abatement request to the IRS, a taxpayer must have reasonable cause that is specific for each year and must be able to explain why the penalties should be removed.
In fact, there are six main reasons the IRS will accept for an abatement of IRS penalties. They include:
Death or serious illness of the taxpayer or member of his/her immediate family. In the case of a corporation, estate, trust, etc., the death or serious illness must have been of an individual having sole authority to execute the return or make the deposit or payment or a member of such individual's immediate family.
In the case of the unavoidable absence of the taxpayer, a corporation, estate, trust, etc., the absence must have been of an individual having sole authority to execute the return or make the deposit or payment.
Destruction by fire or other casualty of the taxpayer's place of business or business records.
The taxpayer was unable to determine amount of deposit or tax due for reasons beyond the taxpayer's control. However, this cause will be acceptable for taxpayer's required to make deposits or payments of trust fund taxes only when the taxpayer was unable to have access to his/her own records.
The facts indicate that the taxpayer's ability to make deposits or payments has been materially impaired by civil disturbances.
Lack of funds is an acceptable reasonable cause for failure to pay any tax or make a deposit under the Federal Tax Deposit System only when a taxpayer can demonstrate the lack of funds occurred despite the exercise of ordinary business care and prudence.