The Internal Revenue Manual (IRM) alone indicates the there are over 140 separate penalty provisions. The primary penalties which pertain to individual tax returns are:

Penalty for failure to file a return (IRC Section 6651)

Taxpayers who do not file a timely tax return may be fined 5% per month of the amount of tax due up to maximum of 25%. If the failure to file is fraudulent, the monthly fine is increased to 15% and the maximum fine is increased to 75%.

Penalty for failure to pay tax (IRC Section 6651)

Taxpayers who do not pay their taxes on time may be fined 0.5 percent per month of the amount of tax due up to 25%. If a deficiency is assessed and is not paid within 10 days of the demand for payment, the taxpayer can be penalized with up to a 25% additional tax if the failure to pay continues.

Penalty for underpayment of tax (IRC Section 6662)

Taxpayers who underpay their income tax may be fined 20% of the amount of the underpayment. This penalty only applies to that portion of the underpayment attributable to:

• negligence or disregard of IRS rules and regulations,
• a “substantial understatement” of tax
• a “substantial valuation misstatement”. The rate is 40% is the misstatement is over 200% of the correct amount.

Civil fraud penalty (IRC Section 6663)

Taxpayers who underpay their income tax due to fraud may be fined 75% of the amount of the underpayment. The IRS has the burden of proving civil fraud.

Erroneous claim for credit (IRC Section 6676)

Taxpayers who underpay their income tax due to any erroneous claim for credit or refund filed after May 25, 2007 may be fined 20% of the disallowed refund or credit. The 20% penalty is applied to the disallowed portion of the claim for refund or credit for which there is no reasonable basis for the claim. The penalty is $5,000 if a taxpayer files a frivolous return.