IRS Introduced Erroneous Claim Penalty: How This Newly-Provision Work

If you submit a claim for an excessive income tax refund or credit without a valid reason, the Erroneous Claim for Refund or Credit penalty will be charged. The Small Business and Work Opportunity Act of 2007 went into effect on May 25, 2007, and it included this IRC 6676 penalty clause.

A penalty amount is equal to 20% of the excessive amount claimed in cases of incorrect refund or claim. The amount of the refund or credit claim that exceeds the amount permitted for any taxable year is referred to as an excessive amount.

Base on the article published by IRS, if there is not a reasonable reason, the amount of the claim may be subject to an accuracy-related penalty even though your refund has been held and is not being refunded to you while your tax return is being audited. Any portion of the refund or credit claim that is disallowed is exempt from the penalty.

Depending on the kind of penalty, IRS start charging interest at different times. Until you make a full payment on your balance, interest will increase the amount you owe.

By accurately and timely filing your tax return and paying your taxes by the due date, you can avoid a penalty. You can apply for a payment plan if you are unable to pay your taxes by the deadline.

Pay what you can now and submit an application for a payment plan if you are unable to pay your taxes or penalty in full or on time. When you create a payment plan, you might be able to lower future penalties.