INDUSTRY INSIGHT
YOUR TAXES
SPONSORED CONTENT
DEALING WITH IRS TAXES AND PENALTIES
Now that the tax season deadline has passed , you may find yourself with a tax balance or with penalties and interest for filing or paying your taxes late . Taxpayers who do not timely file their tax returns are generally subject to a 5 % penalty of the tax due for each month , or fraction of month , that the return is late up to a maximum of 25 %. For partnerships and S corporations that filed late , the penalty is $ 195 ( indexed for inflation after 2014 ) per partner or shareholder per month up to a maximum of 12 months . Business taxpayers can also request abatement for failure to timely deposit payroll taxes . In addition to the failure-to-file penalty , there is also a failure-to-pay penalty of 0.5 % of the net tax up to a maximum of 25 % of the unpaid tax as well as any interest .
Taxpayers can qualify for penalty abatement if they have reasonable cause . Some examples of reasonable cause are :
• Fire , casualty , natural disaster or other disturbances .
• Inability to obtain records .
• Death , serious illness , incapacitation or unavoidable absence .
• Reliance on the advice of the IRS or other professional .
• Serving in the armed forces in a combat zone . You will have to state the facts and circumstances that prevented you from filing or paying your taxes and how this prevented you from filing or paying your taxes timely , as well as what happened and when
it happened and what action you took to remedy the situation after the circumstances changed . Any documentation that you can attach to support your claim such as hospital records , documentation of the natural disaster , etc . should be included . There is also a first-time abatement ( FTA ) penalty waiver , which was introduced in 2001 but remains unknown and unused by most taxpayers since the IRS offers it but does not advertise it . The IRS does not automatically grant FTA . The taxpayer must request abatement under it , either by writing or calling the IRS ( or his / her practitioner may do it ). FTA relief may be granted if the taxpayer :
• Was not previously required to file a return or had no prior penalties over the last three years .
• Filed or had a valid extension for all currently required returns .
• Had paid , or arranged to pay , any tax due . The taxpayer generally needs to be current for both filings and payments for the previous three years . FTA relief applies to a single year and may only be granted once every three years . The IRS FTA policy should be considered if you made one mistake with the IRS and want to be forgiven from some penalties .
Another consideration if you owe taxes and cannot pay them all at one time is an installment agreement . You can fill out form 9465 to request a monthly installment plan over a maximum term of 72 months if you cannot pay your taxes in full .
You could be eligible for a guaranteed installment agreement if you :
• Owe tax less than $ 10,000 .
• Have filed all tax returns and paid all taxes in the preceding five taxable years .
• Agree to pay tax in full within three years .
• Agree to file and pay all tax returns during agreement .
• Have not entered into an installment agreement within the five preceding years . If you do not owe more than $ 25,000 you may qualify under the streamlined approach . Generally , amounts over $ 25,000 require you to provide more information to the IRS via form 433 such as employment , bank , and investment information .
The fee for an installment agreement is $ 120 ($ 52 if you make payments via direct debit ) but may only be $ 43 if your income is below a certain level . Although interest still accrues with the installment agreement , the late-payment penalty is cut in half to 0.25 percent .
If you are interested in obtaining more detailed information , please contact Paul Hartley at 412.571.2900 ext . 112 or email him at phartley @ rwgd . com .
This Industry Insight was written by Paul R . Hartley .
Paul R . Hartley is a partner in Reddinger , Will , Gallagher & Dickert , LLC . He has over 15 years of experience assisting clients with individual and corporate taxes . Please give him a call if you have any questions , 412.571.2900 ext . 112 .
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