What Is an IRS Civil Penalty?

The IRS assesses a civil penalty whenever a taxpayer fails to abide by IRS regulations. Civil penalties refer to fines or penalties the IRS assesses to your tax bill as opposed to criminal penalties that could result in jail time.

If you do not file your tax return by the due date (usually April 15), you will incur an IRS civil penalty (the failure-to-file penalty) of 5 percent for each month or part of a month that your return is late. The failure-to-file penalty is capped at 25 percent. Failure to file your return within 60 days of the due date results in an increase of the penalty of at least $135 or 100 percent of your unpaid tax.

If you do not pay your taxes in full by the due date, you will incur a failure-to-pay penalty. This penalty begins at one-half of 1 percent of your tax bill for each month or part of a month your taxes are past due. The IRS does, however, offer an automatic six-month extension of your due date if you paid at least 90 percent of your total tax bill by the due date. If your tax bill continues to go unpaid, the IRS may start the process of obtaining a levy against you. A levy attaches to your property as security that you will pay your tax bill. Once you receive a Notice of Intent to Levy from the IRS, the failure-to-pay penalty increases to 1 percent each month.

If your tax return miscalculates your tax bill, the IRS may add an accuracy penalty of 20 percent of the amount still due on your taxes. The IRS tacks this on if you meet one of four qualifications: your tax return shows negligence or disregard of IRS regulations; you calculate your tax as much lower than it should be; you claim a tax benefit for an improper transaction; or you fail to properly disclose a foreign financial asset.

The easiest way to avoid IRS civil penalties is to always file your tax returns on time with accurate information and always pay your taxes in full. You may want to consider having your tax return reviewed by a tax preparer before submitting it to the IRS to ensure you have filled it out correctly. If you foresee that you will be unable to file on time or pay in time, you can apply for an extension with the IRS to pay or file late without penalty. In addition, even if you are assessed a civil penalty by the IRS, you may send a statement to the IRS and argue that you had reasonable cause for whatever penalty-causing error you had.