Corporate Tax Penalties
Knowing, understanding or seeking guidance regarding corporate tax laws will decrease your firm's chances of being assessed a variety of corporate tax penalties. Corporate tax penalties are assessed at all governmental levels from federal to local. The tax penalties are intended to be fair, promote tax law abidance and decrease instances of tax abuse.
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Facts
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Corporate tax penalties are punitive measures assessed against a business by various governmental agencies due to the firm's non-adherence to tax laws. They play an important part in achieving the specific goal of efficiently collecting the proper tax amount. Corporate tax penalties can be reduced or waived by the taxing authority in an attempt to resolve tax issues.
Types
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The IRS and U.S. Department of Treasury state there are five types of corporate tax penalties. Negligence, when a reasonable attempt is not made to comply with tax laws, results in a 20 percent penalty. The substantial understatement penalty, involving understatements of more than $10,000, is 20 percent of the taxes understated (under reported). When property value is substantially misstated (more than 200 percent), it involves a 20 percent penalty. Gross valuation misstatement results in double those amounts (400 percent and 40 percent penalty). Fraud involves a 75 percent penalty.
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Prevention/Solution
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Firms can prevent corporate tax penalties from occurring by keeping adequate books and records, exercising reasonable and ordinary care in preparing and filing tax returns and complying with tax laws. Other ways to prevent these penalties include: properly recording sales of equipment and assets, properly valuing assets, filing all tax returns as required, paying payroll taxes on time, using proper payment processing, paying proper tax amounts, understanding the tax laws in place (or seeking guidance) and displaying overall diligence in complying with corporate tax laws.
Purposes
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Corporate tax penalties assessed on businesses serve a variety of purposes. The tax penalties are intended to promote efficient and sound tax administration, to curb the chances of abusive tax transactions, demonstrate overall fairness of the tax system and promote consistency while dealing with tax penalties. The corporate tax penalties are intended to provide taxpayers with an opportunity to explain their position, along with evidence, as to why there should be no assessment made against them.
Reasons
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Reasons for being assessed corporate tax penalties include (but are not limited to): filing tax returns past the required due date, not filing informational or income tax returns, underpaying and/or overpaying income tax amounts due, making incorrect estimated tax payments, not adhering to the payroll tax deposit dates, not paying taxes on gains received from property sales, undervaluing property on property tax returns and tax evasion. Other reasons include not reporting capital gains income and not reporting and paying sales taxes.
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