Tax Dictionary – Accuracy Penalty
The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.
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The IRS can charge accuracy penalties for several reasons. The most common reason is when the IRS thinks you left a large amount of income off your return, or you were negligent in preparing your return.
The IRS charges most accuracy penalties with CP2000 notices and audits. The IRS usually calculates the accuracy penalty as 20% of the difference between what you reported and what the IRS says is the correct amount.
Depending on the type of accuracy penalty the IRS charged you, you may have different options for relief, including reasonable cause. However, arguing accuracy penalties is usually done during the CP2000 or audit process, when the IRS will consider each person’s facts and circumstances.
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