You may qualify for relief from penalties if you made an effort to comply with the requirements of the law, but were unable to meet your tax obligations, due to circumstances beyond your control.
If you received a notice, be sure to check that the information in your notice is correct. If you can resolve an issue in your notice, a penalty might not be applicable.
Penalties eligible for penalty relief include:
- Failing to file a tax return
- Failing to pay on time
- Failing to deposit certain taxes as required
- Other penalties as applicable.
The following types of penalty relief are offered by the IRS:
- Reasonable Cause
- Administrative Waiver and First Time Penalty Abatement
Penalty Relief Due to Reasonable Cause
First, check to see if the information in your notice is correct. If you can resolve an issue in your notice, there may be no penalty.
Reasonable Cause is based on all the facts and circumstances in your situation. We will consider any reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.
The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include:
- Fire, casualty, natural disaster or other disturbances
- Inability to obtain records
- Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
- Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.
Note: A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.
Facts needed to determine Reasonable Cause:
- What happened and when did it happen?
- What facts and circumstances prevented you from filing your return or paying your tax during the period of time you did not file and/or pay your taxes timely?
- How did the facts and circumstances affect your ability to file and/or pay your taxes or perform your other day-to-day responsibilities?
- Once the facts and circumstances changed, what actions did you take to file and/or pay your taxes?
- In the case of a Corporation, Estate or Trust, did the affected person or a member of that individual’s immediate family have sole authority to execute the return or make the deposit or payment?
Most reasonable cause explanations require that you provide documentation to support your claim, such as:
- Hospital or court records or a letter from a physician to establish illness or incapacitation, with specific start and end dates
- Documentation of natural disasters or other events that prevented compliance.
Penalty Relief Due to First Time Penalty Abatement or Other Administrative Waiver
The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy.
You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service’s First Time Penalty Abatement policy if the following are true:
- You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
- You filed all currently required returns or filed an extension of time to file.
- You have paid, or arranged to pay, any tax due.
The failure-to-pay penalty will continue to accrue, until the tax is paid in full. It may be to your advantage to wait until you fully pay the tax due prior to requesting penalty relief under the Service’s first time penalty abatement policy.
Other administrative relief: If you received incorrect oral advice from the IRS, you may qualify for administrative relief.
For assistance with penalties, delinquent taxes, offers in compromise, installment agreements or other issues, call Jeffrey R. Siegel, your Kansas City Tax Attorney at (913) 735-4829.
