Penalties for late filing and late payment are the most common penalties that affect small business owners.
The IRS charges penalties for filing your individual income tax return after the deadline or not paying your tax bill in full by April 15th. The late filing penalty is generally 5 percent of the total tax owed on the return for each month the return is late, up to a maximum penalty of 25 percent of the total tax owed.
The late payment penalty is 0.5 percent of the tax owed on the return for each month the tax is unpaid, up to a maximum of 25 percent of the total tax owed.
Your penalty relief could take minutes on the phone with the IRS and forgiveness of your penalty. You need to know how to ask for relief and what effective words to use with the person on the phone at the Internal Revenue Service.
If the IRS has never hit you with a failure-to-file penalty or a failure-to-pay penalty, simply ask for “first-time abatement.” With this request, the IRS removes the penalties, provided you have no other tax compliance issues, such as unfiled tax returns.
“First time” with the IRS is an opportunity to abatement your penalty.The IRS says this is your “first time” if the IRS didn’t hit you with one of the late penalties in any of the three prior tax years.
If the IRS penalized you five or ten years ago, you can qualify for first-time abatement relief. You don’t need an actual “first-time” event.
First-time abatement is the easiest way to get a penalty removed, because you don’t have to give the IRS a reason or explain why it happened. First-time abatement should always be your first line of attack against IRS late filing and late payment penalties. In fact, the IRS tells its employees to look for this first-time mistake before considering other reasons.
Avoid saying things like “I forgot,” “I just made a mistake,”or “I wasn’t aware of the law.”These statements don’t make your case.
And don’t try to blame your tax preparer for your failure to file or pay. The Supreme Court has held this is not reasonable cause. It boils down to this: you are responsible for your tax filings and payments periods.
If you don’t qualify for first-time abatement, penalty removal gets trickier because you now have to give the IRS a legitimate reason and a clear explanation for why you failed to file and/or pay on time. The tax code calls this “reasonable cause. You can make your reasonable cause pleading on the phone, at least to start with.
Your idea of legitimate reasonable cause likely differs, perhaps even greatly, from what the IRS considers legitimate reasonable cause. To get a penalty removed using reasonable cause, you need to make your plea for mercy specific and use key words.
The IRS lists a few specific situations that are often reasonable cause, provided you can give specific details:
Death or serious illness—yours or an immediate family member. Assuming the death is not your death, be prepared with the relationship of the person, the date of death or dates of illness, how the situation prevented you from meeting your tax requirements, how the death or illness impacted your life negatively, and whether you promptly resolved your tax matters once a reasonable amount of time passed.
Fire, casualty, natural disaster, or other disturbance. If you were located in an officially declared disaster area, that’s important to disclose; however, it is not required for this to apply. Here, you need to describe the timing of the event; the effect on your personal life or business, how you attempted to comply, and how you complied as soon as possible.
Inability to obtain records. You’ll need to explain why the records were important, why they were unavailable, what steps you took to acquire the records, why you weren’t able to use an estimate, and whether you promptly filed the return and paid the tax once you secured the records. Any documentation you have that shows your efforts to get the information is also helpful.
If none of the above apply, you’ll need to provide detailed information showing that you exercised ordinary business care and prudence, but still weren’t able to meet your filing and payment requirements. Be ready to give a clear reason with a timeline, an explanation of how you complied with the law after the issue was resolved, why that time frame was reasonable, and why you could not have anticipated the issue in advance.
If you have any question regarding penalties please do not hesitate in communicate with
Carlos D. Ramirez EA at 772 337 7442 who can represent you before the IRS.