What Form 843 Basics 2011-2024

Thank you for joining today for the penalty abatement basics and techniques course. Just a quick bit about me, I've been doing this for more than 25 years. I am an enrolled agent and I have the opportunity to teach and speak quite often. I'm thrilled that you chose this course to sit in on. Today, we will be covering an overview of penalty basics. We will discuss how penalties are calculated and go through the Internal Revenue manual part 20, which specifically deals with penalties and interest. We will also introduce the First Time Abatement Program and reasonable cost considerations as potential remedies. The purpose of penalties is to encourage compliance from taxpayers. While we have a voluntary tax system, penalties unfortunately cause liability to increase at substantial rates. Over time, the number of penalties has increased significantly with each new bill and tax law. There are various types of penalties, including estimated tax penalties, collection related penalties, accuracy related penalties, preparer penalties, and civil penalties. Estimated tax penalties behave more like interest and are calculated at the same interest rate. For example, currently, the rate is approximately 4%. Failure to file penalties, on the other hand, are calculated at 5% of the unpaid tax for each month or partial month, up to a maximum of 25%. There is also a minimum penalty of $205, although this amount is adjusted for inflation annually. Companies may also face a failure to file penalty, calculated at $195 per month per number of partners, for up to twelve months. It's important to understand these penalty basics and techniques in order to navigate the tax system effectively.