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What are Accuracy Related Penalties for Federal Taxes?

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You will face a tax bill if you are audited and the IRS finds out that you have understated income, had an inaccurate tax return, or took improper tax deductions or credits. Usually the penalty is 20% of the total understatement of tax. The gross valuation misstatements may even get as high as 40% in certain cases. There are different types of penalties that fall under this category. An example would be the IRS Negligence Penalty which includes failure to keep records to support credits or deductions claimed and failure to include income on your tax return that was clearly shown in an information return to name a few. This also includes failure to reasonably check the accuracy of a deduction or credit that appears to be so good it can’t be believable and if you continue to make the same mistakes with specific items even after you’ve been notified. Substantial understatement penalty occurs when you understate your tax liabilities by more than $5,000.

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