Penalties: You Can Win -

Penalties pose unique problems that are not directly associated with tax assessments. Over 90 years ago, the U.S. Supreme Court stated that, while interest is a form of compensation, penalties are a form of punishment. Further, penalties themselves imply wrongdoing or conduct outside legal boundaries.

An assessment of penalties may harm a business’ reputation more than an assessment of tax. The same may be true for the reputation of the business’ tax folks—within the business itself. Further, a dollar of penalty is more expensive than a dollar of tax. Whereas state taxes are deductible for federal income tax purposes, penalties may not be deductible.