IRS Penalty on Tax Debt

Last updated on November 20, 2022

It is important for taxpayers to know that the IRS charges penalties and interest on any amount of tax debt that remains to be paid. That holds true for taxpayers that have qualified for tax debt payment plans. The reason the IRS charges penalties on tax debt is simple: the IRS wants taxpayers to pay the entire tax debt as early as they can.

A tax debt that has remained unpaid for years gathers a substantial amount in penalties, which makes it more difficult for the taxpayer to pay back the entire debt amount. To avoid paying more to the IRS, taxpayers should try to resolve their tax debt as early as possible. If their financial condition does not allow them full payment of tax debt, they may apply for tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement. Those that cannot pay any amount of tax debt can consider applying for the Currently Not Collectible status.

IRS penalty on tax debt can be reduced or removed under certain circumstances. If a taxpayer could not file taxes on time due to a ‘reasonable cause’, the IRS will consider either reducing or removing penalty on the taxes owed. A reasonable cause can be a situation or event that was unavoidable and beyond the control of the taxpayer due to which the taxpayer suffered financial, mental or physical challenges.

Penalties are an important consideration when getting a tax debt case resolved. Timely efforts can help taxpayers pay less in tax debt.