IRS Audit Penalties Help

What Audit Penalties Mean

IRS audit penalties are additional charges imposed when the audit results in additional tax owed. The most common is the accuracy-related penalty, which is 20% of the underpayment. Penalties are separate from the additional tax and interest.

Penalties can be reduced or eliminated if you demonstrate reasonable cause for the underpayment or show that you acted in good faith and with reasonable reliance on professional advice.

Common Audit Penalties

IRS audit penalties include:

• Accuracy-Related Penalty: 20% of the underpayment due to negligence or substantial understatement
• Civil Fraud Penalty: 75% of the underpayment if fraud is proven (rare)
• Failure to File Penalty: 5% per month up to 25% for late filing
• Failure to Pay Penalty: 0.5% per month up to 25% for unpaid tax
• Estimated Tax Penalty: Interest-based penalty for underpayment of quarterly taxes

Accuracy-related penalties are the most common result of audits where additional tax is assessed.

What NOT to Do About Penalties

• Do not agree to penalties without understanding your options
• Do not pay penalties without requesting abatement if you have reasonable cause
• Do not ignore penalty notices hoping they will go away
• Do not assume penalties are automatic and unavoidable
• Do not make vague or emotional arguments for penalty relief

How to Request Penalty Relief

To request penalty abatement or reduction:

• Submit a written request explaining reasonable cause for the error
• Provide documentation of circumstances beyond your control (illness, disaster, incorrect professional advice)
• Show that you exercised ordinary business care and prudence
• Demonstrate good faith effort to comply with tax law
• Request first-time penalty abatement if you have clean compliance history

Penalty abatement requests should be made during the audit or immediately after receiving the audit results. Include your request in your audit response letter.

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