NCPA Tax Policy - IRS Collecting More Than Taxes

Tax Policy

IRS Collecting More Than Taxes

The amount of interest and penalties imposed by the Internal Revenue Service on taxpayers have become so huge that influential politicians call them "out of control." Even the IRS commissioner says it's time to re-examine a system which punishes people who make honest mistakes.

Penalties are imposed for a failure to pay tax, failure to file a return, inaccurate returns and fraud.

In 1996 the IRS sent out notices for penalties and interest totaling $18.3 billion -- and collected more than $4.4 billion of it.
Net interest on penalties and late taxes alone totaled $10.8 billion.
Assessed penalties and interest have varied from 1.2 percent to 1.9 percent of total tax collections in the 1990s.

Interest on penalties and tax due is imposed from the due date of the return for failure to file, failure to pay a stamp tax, accuracy and fraud penalties. For all other penalties, interest is imposed if the addition to tax or penalty isn't paid within 21 calendar days after the IRS issues a "notice of demand." If the amount is more than $100,000, the taxpayer must pay within 10 days.

Critics charge that the IRS sometimes takes years to notify people of mistakes on their returns. Penalties are payable when the tax is due and interest starts accumulating immediately. So some taxpayers get smacked with huge bills after years of IRS delays.

Source: Associated Press, "Few See IRS Penalties as Fair, But Don't Expect a Quick Fix," Washington Times, March 16, 1998.

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