IRS Charges Penalties for Improper Deduction on Tax Return

IRS Problems

Did you know that the IRS charges penalties for claiming certain deductions on your tax return? For example, if you claimed a deduction that wasn’t allowed or qualified, you could get a penalty from the IRS. 

It’s important to understand what constitutes an improper deduction on your tax return and what kind of penalties you could face. So in this guide, we’re going to cover the basics so that you’re familiar with the IRS’s rules and regulations.

If you are struggling with your taxes or the IRS penalized you for improper tax deductions, we encourage you to reach out to the Law Offices of Mary E. King. We have extensive experience dealing with the IRS and helping our clients resolve tax matters.

So be sure to contact us right away for knowledgeable and reliable legal representation and guidance. In the meantime, feel free to continue reading to find out what’s considered an improper deduction on your tax return.

Improper Deductions: What Are They?

The Internal Revenue Service does not have the resources necessary to verify each deduction reported on tax returns. This means that taxpayers can and sometimes do attempt to increase their tax savings by making false deductions.

While honest mistakes can be made, there are strict penalties for taxpayers who deliberately evade taxes and/or disregard tax laws when reporting deductions. The following are some of the most common tactics used by taxpayers who deliberately falsify their tax returns.

Substantial Underpayments

When taxpayers take deductions that they aren’t entitled to—thus resulting in them substantially underpaying their income taxes—the IRS will impose a penalty.

This penalty essentially takes the underpayment and increases it by 20%. It’s then added on top of what the taxpayer already owes. 

So, what does the IRS consider “substantial?”

If you’re an individual, it’s either 10% more than what your tax return should have been or $5,000. Of course, there are exceptions where you might have a legitimate reason for underpaying a substantial sum of money on your tax return.

If that’s the case, you should provide said reason for the larger-than-normal underpayment on Form 8275 and send it to the IRS along with your tax return. It’s not a guarantee that the IRS will accept it, but at least you won’t have to pay back an additional 20%.


Any underpayment on your taxes that’s due to reporting a false deduction, incorrect tax item, or negligence may result in a 20% penalty. What’s more, the penalty can be applied regardless of how much you underpaid. It may also apply if you fail to follow the tax code and fail to exercise reasonable care in preparing your tax returns. 

But if you make an error by accident and your return was filed with no ill intent, the penalty might not apply. You may need to plead your case to the IRS to prove it was an honest mistake, but it can save you from having to pay a penalty. It’s recommended that you speak with an experienced tax attorney to assist you in communicating with the IRS. Your legal counsel’s experience in dealing with the IRS can help make all the difference in what you owe.

Misstatements of Gross Valuations

Certain deductions, like those for a property donation, are based on an estimate of property value. But if you overestimate the value of a property, your deduction may be greater than necessary. And although the valuation of your estimate doesn’t have to be exact, anything higher than 150% will raise flags at the IRS. 

An estimate this high could result in you underpaying your taxes by over $5,000. When this happens, the IRS will hit you with a penalty and order you to pay back an additional 20% of the underpayment. And if you try to go even higher—like up to 200% or more—your penalty doubles to 40%.

It’s important to keep in mind that improper deductions don’t just penalize you for the infraction; you’re also charged interest when the IRS charges penalties. So it’s easy to see how quickly things can add up. If you find yourself in such a position, you should speak with an IRS tax attorney Sarasota, Florida right away. 

At the Law Offices of Mary King, you’re getting experienced legal counsel from a team of IRS and tax experts. Mary King has more than 30 years of experience and has seen and dealt with virtually all tax-related matters. You can trust that you will receive qualified care and attention. Mary and her team will fight to make sure you get a favorable outcome, so don’t hesitate to call today.

Need to Contact Mary King? Here’s How

Mary and her legal team proudly serve Florida and want to discuss your legal needs today. Call the law office at 941-906-7585 to schedule a consultation or fill out this contact form to get started.

The information in this blog post is for reference only and not legal advice. As such, you should not decide whether to contact a lawyer based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.

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