The Basics of Franchise Tax Board Penalties

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Tax returns with a franchise could lead to severe consequences when the paperwork contains errors or falsifications for yearly income and other expenses or deductions. It is imperative that the owner of the franchise discloses all information and ensures that the Internal Revenue Service has everything with all valid and correct details.

Even if a franchise owner is attempting to file taxes with legitimate numbers, he or she may provide documentation that is false. Unfortunately, even if this was an accident, the IRS may fine or levy various other penalties to the company owner. Late filing and past due payments for income or sales tax owed to the government may lead to these consequences and harm the franchise as well as the parent company. It is even more important to ensure that the franchisor has no negative impact for what the franchisee accomplishes alone. It is often better to hire a tax lawyer to ensure these violations do not arise.
Penalties for Accuracy Errors

It is important to ensure that tax penalties that are significant are either reduced or removed entirely before they cripple the company. However, many individuals may place information in tax documents that is erroneous or less than what should transfer to the Internal Revenue Service. Penalties received for these grievous mistakes are at both the federal and state levels. These are underpayment penalties that are often costly and could incur repayment of up to $5 million to a franchise owner due to the connection of a franchise to a corporation. There are several violations that the individual may make when filing tax forms.

The primary concern that a franchise or corporation may have when filing a tax return is the intent and amount of damage caused by these actions. If the tax form has significant misstatements or errors, this could lead to criminal charges as well as the penalties incurred. However, communication about the information supplied to the IRS through these returns may mitigate the damage. Some companies trust one expert who then causes untold economic injury to the company either intentionally or through is or her own incompetence. It is these situations that could end in worse penalties when the franchise owner is not willing to contact an expert.

Reasons for Penalties

When a franchise owner engages in negligence or has no regard for tax rules and regulations in place, he or she may incur penalties for these actions. Understatement of income tax, valuations, overstatement of liabilities and foreign asset disclosure are all part of severe penalties in taxation. Deductions or benefits for economically unsound data is another form of these violations. Any inclusion of false information or inaccurate details could constitute as fraudulent tax behavior. Above the monetary penalties, the owner of a franchise could face criminal charges. Another possibility is a company audit with an IRS agent. Then, a lawyer is critical to mitigating the potential damage.

Penalties often occur when the franchise owner files a return with an underpayment of around 20 or more percent. Similar instances may occur when the amount is equal to or exceeds 40 percent in the previous year. Gross misstatements could leave to further penalties that may harm the franchise overall. Some of the payments necessary due to penalties could cripple the company until a resolution occurs. The burden of owed monies to the IRS could eventually close the franchise unless additional measures happen. To prevent these situations, it is important to hire a tax professional such as a lawyer.

Abating Penalties

It is possible to reduce the penalties incurred or eliminate them entirely. For this possibility, the franchise owner must demonstrate that there was a reasonable explanation for the numbers. The amounts filed must have occurred in good faith. It is then necessary to explain the information and provide reasons why the data is not consistent. It is best to proceed with a tax professional or accountant that helped with the books. Communication with the IRS in these matters is essential. It is possible for abatement to occur when everything has a reasonable account.

Tax Penalties Legal Assistance

For an abatement or to avoid these circumstances entirely, it is important to have a tax lawyer available. This legal representative may provide various services and detailed steps to prevent penalties. This could save the franchise and ensure a future in business continues. By hiring a lawyer, the rule and guidelines may become clearer, and the rights of the owner may remain protected.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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