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How penalties and interest work
The IRS has a certain set of rules and regulations that govern how people owe and pay their tax debt. Any violations of these published rules and regulations could lead to substantial penalties. Some of the most common penalties result from mistaken calculations of taxes owed or withholdings. There are also penalties for late payments and failures to submit paperwork. Interest is charged because the IRS decides how much money one was supposed to pay and how much interest they could have made on those funds when they were supposed to be in IRS coffers. It is a tactic designed to increase the incentive for a person to pay back what they owe as quickly as possible.
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