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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