4 IRS Audit Penalties You Should Know About | RefundNote Blog


4 IRS Audit Penalties You Should Know About

4 IRS Audit Penalties You Should Know About

The internal revenue service (IRS) is responsible for penalizing taxpayers who fail to file their returns before the stipulated time in the United States. These penalties are mostly in the form of money or a forfeiture of property. There are a couple of penalties, which often depend on the taxes that are defaulted. Remember, the longer a taxpayer takes before paying, the higher the penalty.

A taxpayer is penalized for various reasons which include failing  to file income tax returns for the period or when the taxpayer files incorrect returns for some reasons best known to them. This article clearly outlines the various penalties imposed by the IRS.

1. Penalties due to inaccurate filings

If the IRS audit finds that the taxpayers filed the wrong returns, the person tends to pay 20% of the amount of money that is underpaid. Some of these penalties include:

  • Failure to comply with regulations contained in the Federal tax code rules.
  • Tax returns that are inconsistent with IRS regulations.
  • Misquoting the value of property.
  • Pension liabilities which have been overvalued.
  • Penalties relating to failure to file returns and pay taxes.

The penalty for late filing of returns is subject to 5% of the amount of tax that is not paid, charged monthly up to a maximum of 25%. For individuals who are late in filing returns for more than 60 days, a maximum penalty of 135 dollars is charged.


After an IRS audit is conducted and it is found that a person has failed to pay tax, the person will be subject to a penalty of 0.5% for each and every month that the tax is not paid. To make it worse, if the outcome of the audit is failure to file returns, or civil fraud, an interest of 3% is charged annually to the amount of the penalty.

2. Civil fraud penalty

Any fraudulent activity detected by the IRS audit is subject to a huge penalty of 75% on any tax that was underpaid. Some people may find this better than landing in jail and being imprisoned for quite a number of years. The good thing about this is that you cannot be penalized after you are charged a penalty.

3. Intentionally failing to pay the tax required or keeping records.

The internal revenue service considers this as a petty crime. For this type of crime, civil penalties are mostly recommended.

4. Tax Evasion

This behavior is common and quite rampant in a number of countries, such as the famous Chicago crime syndicate boss Al Capone. This involves purposely misrepresenting the books of account to evade paying taxes. The penalty for an individual who has evaded paying tax is 5 years in a federal prison or a maximum fine of $100,000.


Most IRS audits take a maximum of one year, although the time period can extend depending on a number of factors which include:

  • Modification by the IRS auditor which take a long time.
  • Small businesses which requires the IRS auditors to scrutinize website and bank accounts with the sole purpose of determining if the business recorded all its income. This may take a longer time and therefore the need to extend the time period.
  • Arguments with IRS auditor relating to the changes made.

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