Updated: Dec 4, 2020
Missing a tax deadline can cost you time and money. Not filing alone can quickly add up with a failure-to-file penalty that can add up to 25% of your balance on to your tax bill. That in addition to a late payment penalty which is generally .5% of the balance each month and can be up to 25% of the balance adds an extra ouch!
The IRS isn't set out to ruin your life, and they understand that life happens. That's why per the Internal Revenue Manual Section 20, there are 9 reasonable causes to get your penalties removed from the balance that you owe the IRS. We don't have time to go into all 9 today but I do want to share 3 of them with you. Before we go through those 3 let's make sure that you understand the 3 things necessary to show the IRS to get your reasonable cause for penalties to be removed by them.
Penalty Removal Checklist
The requests must be in writing.
The event must match the tax years involved in the request. Timing is everything!
Supporting documentation is necessary.
Without these things the request for penalty removal, better known as penalty abatement in IRS terms, will not be accepted. If you can check all three things on the list then get your pen and paper as we go into detail about the 9 reasonable cause arguments for penalty abatement.
Death, Serious Illness, or Unavoidable Absence
It's critical when using this this argument that you can prove that death, serious illness, or an unavoidable absence actually caused you to not file a tax return and or not to pay the taxes owed. It has to be the actual reason you didn't file not just a coincidence. That's why the following items are qualifications to use this reason:
Immediate Family Only
Issue must be addressed in a reasonable time after death/illness
Proof that other obligations were also unmet, not just taxes
Written proof of the illness or death
Fire, Casualty, or other Natural Disaster
This is a pretty straightforward but remember timing is everything! You must do everything within your power to come into compliance as soon after the emergency event. Documentation of the disaster will also be necessary to prove that it hurt your ability to be able to file and pay your tax returns. You can use things such as pictures, insurance reports, and even news stories. It is even better if a Federal or State disaster has been declared because then you can get the declaration and put it into your request. The two things necessary to use this argument are:
Documentation of how you tried to get in compliance as soon as possible
Major disasters include - hurricane, tornado, earthquake, flood, riot, or any other federally declared disaster
Unable to Obtain Records
A simple "I can't find them" won't work in this situation. You'll want to write out exactly what happened to your documents resulting in you not being able to obtain them. The IRS will want satisfactory answers to the following questions to use this argument:
Did you promptly comply once the missing information was obtained?
Why didn't you just make an estimate?
What other ways did you try to find and secure the information?
When and how did you become aware of not having the necessary records?
Why were the records necessary for you to comply?
Why were the records unavailable?
Remember, IRS agents are people too but they aren't going to just take your penalties away for no reason. You have to be sure that you have everything in writing, with times that correspond with the argument you are making for penalty abatement. If you don't qualify for the events covered in this article you may qualify for First-Time penalty abatement or reasonable cause by mistake made, erroneous advice/reliance, written/oral advice from the IRS, ignorance of tax laws, reasonable cause/ordinary care, or undue financial hardships.
If you owe $20,000 or more my team and I would love to speak with you to see if you are a good fit for our firm. We'll step in your shoes and handle the IRS for you so you can continue to live your life. If this sounds good to you book your call today at https://bookingbowens.as.me/ .
Timalyn S. Bowens EA is Louisville's Tax Expert and will work hard to find a legal solution that is customized for you!
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax & Bookkeeping Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with tax preparation, tax representation, tax planning, and more. Visit our website at www.bowenstaxsolutions.com for more information.