The U.S. tax system is based on self-assessment of tax and voluntary compliance with the IRS rules and regulations. Penalties are intended to encourage voluntary compliance. The Code imposes many penalties - ranging from civil fines to imprisonment for criminal tax evasion. Penalties are generally payable upon notice and demand and generally are assessed, collected, and paid in the same manner as taxes. The notice you receive from the IRS must contain the name of the penalty, the applicable Code Section, and a computation of the penalty. Following is a brief discussion of the more frequently encountered civil penalties and the means by which they might be avoided.