Here’s what HIVE AI had to say about “Are there increased penalties for under-reporting income?”:
Are there increased penalties for under-reporting income?
Generally, the baseline federal penalty structure for under-reporting income has not been “increased” as a broad, across-the-board change; instead, the IRS applies different existing penalties depending on what caused the underreporting (error/negligence vs. substantial understatement vs. fraud vs. special categories like foreign assets or reportable transactions). 3
Most common civil penalty: accuracy-related penalty (typically 20%)
If you underreport income and it results in an underpayment, the accuracy-related penalty is commonly asserted at 20% of the underpayment portion attributable to negligence/disregard of rules or to a substantial understatement of income tax. 3 4
Higher civil penalty when underreporting is fraudulent: civil fraud (75%)
If the underpayment is attributable to fraud, the civil fraud penalty is 75% of the portion of the underpayment attributable to fraud. 5
Special “increased” rates that can apply in particular underreporting situations
Some underreporting categories carry higher-than-20% accuracy-related penalties under existing law/rules, for example:
- Undisclosed foreign financial asset understatement: 40% accuracy-related penalty can apply to the underpayment portion attributable to the undisclosed foreign financial asset understatement. 6
- Reportable transaction understatement: generally 20%, increased to 30% if required disclosure rules aren’t met. 1
Criminal exposure (separate from “increased” civil penalties)
If underreporting is willful and falls under a statute that provides criminal consequences, penalties can include fines and imprisonment. For example, IRC § 999(f) includes potential criminal penalties for willful failure to report required information under that section. 2
Interest
In addition to penalties, the IRS charges interest on penalties/underpayments. 3
Sources
1 – IRC § 6662A(a)
2 – IRC § 999(f)
3 – Accuracy-related penalty | Internal Revenue Service
4 – Instructions for Form 8275-R (11/2024) | Internal Revenue Service
5 – 8.17.7 Penalties/Additions to Tax in Computations | Internal Revenue Service
6 – 20.1.1 Introduction and Penalty Relief | Internal Revenue Service
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