The penalty structure becomes more logical, but finding the logic is not always easy

Article Abstract:

The Improved Penalty Administration and Compliance Tax Act (IMPACT) was enacted to simplify civil tax penalties. IMPACT replaces the tax penalties for negligence, substantial understatement, and valuation with a single uniform penalty. There now is a 20% penalty on the portion of underpaid tax due to negligence or disregard for IRS rules and regulations, understatement of income, gift tax, or valuation of estate tax liability. The penalty also applies to valuation overstatements or overstatement of pension liabilities. The penalty for the portion of underpayment resulting from understatement of tax is lowered to 20% of tax liability from 25%. Valuation overstatement penalties are triggered if the value on an adjusted basis of property is 200% of correct value and results in an underpayment of at least $5,000. Preparer penalties are revised for understating a taxpayer's liability, willful or reckless conduct, and miscellaneous offenses.

Revenue

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Many penalties substantially increased as a result of the Tax Reform Act of 1986

Article Abstract:

Substantive changes in the tax code required by the Tax Reform Act of 1986 will not take effect until returns are filed in 1988, but the revised tax penalties for noncompliance with the law become effective for returns filed in 1987. The maximum penalty for failing to file an information return by the required date will be increased from $50,000 to $100,000. The penalty for failure to pay tax when due has been increased from 0.5 percent per month to 1 percent per month, and the scope of the negligence penalty has been broadened to include all taxes under the Internal Revenue Code. The penalty for substantial underpayment of tax has been increased from 10 percent to 25 percent. The interest paid for overpayments will be based on the Federal short-term interest rate plus two percentage points, and underpayments' interest will be based on the Federal short-term rate plus three percentage points.

Tax accounting, Tax reform

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Taxpayer penalty provisions place extra burden of care on practitioners

Article Abstract:

The increasing number and complexity of tax penalty provisions make it more difficult for taxpayers and tax professionals to know when different penalties apply, but it is necessary that tax consultants ensure their clients are aware of the penalties to which they may be exposed. In a review of recent additions and changes to tax penalty rules and regulations, several different tax statutes are reviewed, including the expansion of Section 6653 by both the Economic Recovery Tax Act and the Tax Equity and Fiscal Responsibility Act. Examples of the effect of changes to these and other tax penalty regulations are provided.

Economic aspects, Tax administration and procedure, Tax administration, Fraud, Negligence

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