IRS Penalties & Penalty Abatements (waivers)

IRS Penalties & Penalty Abatements (waivers)

The Internal Revenue Service has a penalties for all sorts of things related to your taxes. If you file your tax return late, the IRS will assess you the failure to file penalty. If you do not pay your taxes by the due date, the IRS will assess you the failure to pay penalty. If you don’t file your return and the IRS prepares your return for you, the IRS will assess a penalty. If a business does not timely make tax deposits, the IRS will assess the business the failure to deposit penalty. In some instances, if you don’t file the correct forms with your tax return, the IRS will assess a penalty.
Generally the penalties assessed by the IRS are based upon the amount of unpaid tax, but not always. There are some forms that will generate a penalty if filed late whether or not the taxpayer has unpaid taxes.

Taxpayers are afforded the opportunity to request that portions of, or all, penalties may be waived or abated through a formal penalty abatement request with the Internal Revenue Service. The IRS will waive penalties when a taxpayer can establish that they had a reasonable cause for incurring the penalty. You can think of reasonable cause as causation or the reason the taxpayer was unable to file the return, pay the tax or take the necessary actions to prevent the assessment of the tax penalty. A Columbus tax attorney at The McGuire Law Firm will assist you in analyzing and compiling your penalty abatement request and establishing reasonable cause to get the penalties waived.

What is reasonable cause?

Reasonable cause is outlined by the IRS and broadly looks to factual scenarios that would prevent a reasonable person from being able comply with what gave rise to the penalty. For example, if the taxpayer or an immediate family member was ill and this illness prevented the taxpayer from being able file their tax return on time, the IRS may consider abating the failure to file penalty because illness is considered a reasonable cause not timely filing.. Furthermore, if an increase in out of pocket medical expenses placed the taxpayer in a situation where they could not afford to pay the tax or payment of the tax would create a severe economic hardship, the IRS may consider abating the failure to pay penalty. Each penalty abatement request is independently reviewed on a case by case basis and is based upon the facts of the taxpayer. The IRS may agree to waive one of the penalties, such as the failure to pay penalty, but not agree to waive other penalties such as the failure to file penalty.

What are the most common penalties?

Two of the most common penalties issued by the IRS are the failure to file penalty and the failure to pay penalty. Both penalties can max out at 25% of the amount of the tax due. The two penalties differ with the time period in which the penalty is assessed. The failure to file penalty is assessed at a rate of 5% per month and maxes out after the return has not been filed for five months after the due date. The failure to pay penalty is assessed at a rate of 0.5% per month and maxes out after the tax has not been paid for 50 months. It is typically better for a taxpayer to file their return timely even if they are unable to pay the amount of tax due because the failure to file penalty accrues much faster than the failure to pay penalty. If a taxpayer formalizes an installment agreement to resolve their liabilities, the failure to pay penalty is reduced to .25% per month. Always file your returns timely!

Any taxpayer that has been assessed penalties from the IRS should contact a tax attorney to discuss the possibility of the penalties being abated. You can speak with a Columbus tax attorney by contacting The McGuire Law Firm.

Contact The McGuire Law Firm to schedule your free consultation and speak with a Columbus tax attorney.