IRS Penalties and Interest

In a previous entry, Bruce shared what it is like to be audited by the IRS. Here, we’re going to discuss another scary part of the IRS: penalties and interest.


Making mistakes on our tax returns, forgetting to file, or not having enough money to pay what we owe can happen to the best of us. We know there will be negative consequences, but how negative are they? Well the consequences can range anywhere from some minor interest charges to several years in prison.

Since our clients are honest people, we’ll assume that any issues you have were honest mistakes that don’t warrant jail time. Those mistakes, however, will probably warrant some penalties and/or interest. Interest and penalties can accumulated quickly, so it is important to file your taxes and pay any balance due on time. The IRS can assess any and all of the most common penalties faced by taxpayers, as shown below:

Failure to file or late filing of your return: Penalty is 5% of unpaid balance for each month the return is late (maximum of 25%)

Failure to pay or late payment: 0.5% of unpaid balance each month it is late (approximately 6%)

Underpayment of estimated tax: Interest at the federal rate for underpayment (currently 4%)

Adoption Credit - New and Improved!

With the recent passage of the Health Care Reform Act, there are going to be many changes that affect how much and what kind of taxes we pay. One change that could be beneficial for some relates to the adoption credit.


For 2010, the maximum tax credit for qualified adoption expenses has been raised to $13,170 and is now a refundable credit, which means you may be able to get a refund that exceeds that tax you pay.

Please contact Brandon or Bruce if you have any questions.

Below is a link to a more detailed explanation of the credit.

Adoption Credit

Ragnar Relay Wasatch Back 2010

Ulrich & Associates sponsored two teams for the Ragnar Relay Wasatch Back 2010 race. Each team ran from Logan to Park City, covering 188 miles. Chuck, Mike, Cathie, and Kylee each participated. The remaining runners were family members, friends, and clients. The firm has registered two teams for the 2011 relay and can't wait to do it again!

Top from left to right: Camille Ames, Brady Ulrich, Chuck Ulrich, Jed Johnson, Amanda Ulrich, Jamey Price
Bottom from left to right: Elyse Greiner, Ashley Ulrich, Camille Carver, Jennifer Ulrich, Eric Okleberry
Not pictured: Tasche Ulrich

From left to right: Tammy Ulrich, Mike Ulrich, Cathie Hurst, Jeff Hurst, Kylee Wayment, Ryan Wayment, Brant Beus, Jeremy Hart, Janet Pace, Becky Stromberg, Bryan Stromberg

Small-employer health insurance credit

The recently enacted Health Care Bill included a new tax credit for small business owners who provide and pay for at least 50% of the insurance premiums of their employees' qualifying health plans. In 2010 the credit is a maximum of 35% of the cost of the employer-paid premiums.

In order to qualify for the credit, an employer can have no more than 25 full time equivalent employees (FTE) and the average wages per FTE must be less than $50,000. To qualify for the maximum credit, the employer can have no more than 10 FTE and average wages must be less than $25,000.

As usual the Congress and the IRS has not made things simple. If you need assistance determining if your business may qualify for the credit, please contact Brandon or Bruce.

Below is a link to a more detailed explanation of the credit.

Small-Employer Health Insurance Credit.pdf

My Audit Experience

This is Bruce's experience in being personally audited by the IRS:

After sitting with a compliance officer for four hours I have come to the conclusion that the IRS must require its employees to have “can I see your documentation” tattooed on the inside of their eye lids. I heard this over and over. Fortunately, I was prepared with the documentation necessary to prove my case. Unfortunately, providing the evidence supporting your case is only half of the challenge. The second half of the challenge is getting the IRS to interpret the evidence the same way that you interpret the evidence, and helping the IRS to see how the evidence relates to the issue at hand. This second half of the challenge was, in my experience, the most difficult part of the process.

When presenting your evidence to the IRS, you must understand the evidence forwards and backwards, since the IRS representative is not experienced with the details of your particular case. Along with not having experience with my particular case, the compliance officer assigned to my case was not familiar with the Internal Revenue Code sections directly related to my case. I was caught off guard by his lack of familiarity with the section of the tax code that was in question. I brought with me the Regulations supporting my position and provided copies of the Regulations to the officer. This proved to be of great benefit since it limited the amount of time the officer had to spend researching the specifics of my case.

The most important thing I would like to share from my experience is the signing of the audit findings. The officer was very persistent in his attempts to get me to sign a statement saying that I agreed with the audit findings. I found this to be very unnerving. Remember that if you are not comfortable with the audit findings you have additional avenues you can pursue.

Congratulations Bruce!

We are pleased to announce that Bruce Gulso has obtained his CPA license from the State of Utah, after successfully passing all four sections of the CPA exam. With the addition of Bruce, the firm now employs eight CPAs. The firm believes that Bruce’s high moral and ethical standards, coupled with his work ethic make him a great addition to the profession.