Trust Fund Penalty for 941, payroll taxes
This penalty is reserved for those who are deemed to be a responsible party, someone whose actions helped cause the tax debt to begin with. This could be any of the following: Corporate Officers, Shareholder, Director, an employee, Partners of partnerships, or someone who controlled the checking account, and was in charge of forwarding taxes to the IRS.
This penalty shows up on an IRS statement as “CIV PEN”. To determine who and how much this penalty will be, the IRS conducts what is called a Non-Assertion interview, which determines the responsible parties, and the percent of the penalty they will be held accountable for. This penalty is equal to 100% of the Trust Fund amount owed, and can devastate a business owner. Professional help should also be used once a business is in this situation.
Failure to file penalty
The failure to file penalty is 5% per month, to a maximum of 5 months, or 25% of the principal amount of tax owed. This may be avoided by filing an extension of time to file. The filing of the return on time does not stop the failure to pay penalty, see below, only the failure to file penalty, as the amount owed is due at the time you file. It is always wise to file tax returns, to avoid this penalty.
Failure to pay penalty
The failure to pay penalty is a one half of one percent penalty for each month you fail to pay. This penalty can be as much as 25% of your unpaid taxes.
Remedies for penalties
Penalty abatement may be obtained under certain circumstances. To establish those circumstances you need to establish reasonable cause criteria. This is best left to a qualified Tax Professional, as other options for dealing with your tax debt, and penalties may work better than a penalty Abatement.
60 day late penalty
If you file your return 60 days after the due date, or the extension date, the minimum penalty is 100% of the unpaid tax or $135, whichever amount is smaller.
IRS Underpayment Penalties
The penalty for underpayment of tax is .5% per month. This penalty will happen regardless of whether you file for an extension of time to file your return. The extension of time only extends the time for filing, and would limit the penalty for failure to file. You still must pay the tax owed, even if you file an extension. If you do not pay what is owed, the Failure to pay, or understatement penalty would apply. The Underpayment of Estimated tax can be reported on IRS Form 2210. The link to that IRS form can be found at irs.gov/pub/irs-pdf/f2210.pdf
IRS Fraud Penalties
Tax Fraud often involves Civil Penalties for the fraud. Using offshore accounts to hide assets or income, destroying records in attempts to evade tax, working under the table and not reporting income, lying if audited, all of these constitute IRS Fraud. Fraud is a serious matter and should be handled by competent tax professionals. Failure to file returns, and having a history of non-filing, both make you a candidate for fraud convictions. Being uncooperative with the IRS, and having no explanation for your tax non-compliance also qualify.