Whether you didn’t file your tax return on time or didn’t prepare an accurate return, one thing is for certain: the IRS will come after you waving a penalty flag.
Mistakes happen, but the price tag per penalty varies. For example, the failure-to-file penalty is 5% of your unpaid taxes for each month that the return is late. If five months go by and you haven’t paid up, the failure-to-file penalty will max out, but the failure-to-pay penalty continues to grow until it’s settled, up to 25%.
There is some good news, however. If the IRS issues a penalty, there are circumstances that may grant you some relief:
Reasonable cause
The IRS may remove or reduce a penalty if you attempted to comply with tax laws but were unable due to conditions out of your control, such as:
- Death or serious illness of a close family member
- System issues that delayed a filing
- A fire or other natural disaster
First-time abatement or other administrative waiver
A first-time abatement penalty waiver is the most common administrative waiver for individual taxpayers and businesses that receive their first tax penalty. To qualify, you must meet the following conditions:
- You’ve demonstrated past compliance, meaning you’ve filed the same type of return for the past three years and didn’t receive any penalties during that time.
- You’re currently compliant, having filed all required returns or filed a valid extension, and you’ve paid all other taxes due or are under a payment plan.
Statutory exception
According to the IRS, the following reasons may constitute what is known as a statutory exception:
- Mailed a return on time but still received a penalty
- Received incorrect IRS advice
- Lived in an area affected by a federal disaster
- Were stationed in a military combat zone
Wiping the slate clean
To apply for relief due to any of these reasons, your first step is to contact the IRS via the toll-free number on your penalty notice. If the IRS is unable to approve your request over the phone, you’ll be given next steps toward appealing your penalty.
Our advice? Don’t go it alone. A trusted tax advisor can help you sort through the IRS rules and ensure you have a case for penalty forgiveness. Reach out to the tax resolution experts at Magone & Company today at (973) 301-2300 for assistance.