For a CPA firm, penalty abatement can be challenging. Between IRS notices as well as state and local agency correspondence, you can spend quite a bit of time answering penalty notices for late filing, late payment, failure to file, etc.
The number of penalty provisions continues to grow:
1) In 1955, there were 14 provisions
2) Now, there are more than 100
3) Penalty provisions continue to grow
Penalty provisions are designed to encourage compliance
1) But may cause liability to increase substantially
Penalties range across every type of tax. The most common penalties are:
1) Estimated tax penalty
2) Collection related
3) Accuracy related
Estimated tax penalty is:
1) Treated more like interest
2) Rate of this is same as current interest rate
3) Underpayment of tax current rate is 3% in 2015
Collection related penalties are:
1) Failure to file
2) Failure to pay
3) Failure to deposit
4) Trust fund recovery penalty
Accuracy related penalties are:
1) Commonly imposed as a result of an IRS audit or notice of underreporting income
2) Substantial understatement of income