If a taxpayer is late with paying their taxes by their due date, they can face the possibility of having substantial tax penalties applied to their original tax balance. The types of late pay penalties fall into two categories: failure to pay and failure to deposit. Failure to pay is not paying by the tax return’s due date. Failure to deposit is not making estimated tax payments as required based on the deposit criteria applied to an individual taxpayer’s tax account. The penalties can greatly increase the amount of taxes due. However, in some cases, the IRS may be willing to waive or abate these tax penalties.
In order to have these tax penalties waived, you must show that the reason you were unable to either file or pay your taxes was due to a standard known as “reasonable cause”. By “exercising ordinary business care and prudence” (which is how the IRS website states they establish reasonable cause), and making sure explanations of the facts and dates match the reasons why they were unable to pay in a timely manner, the IRS may be willing to waive these two fees. In addition, the IRS will look at other factors in determining if these fees should be waived including looking at a taxpayer’s tax payment history over the previous three years, when the tax was due versus when circumstances prevented a taxpayer from making their tax payment(s), and finally what circumstances were beyond the control of the taxpayer that prevented them from making their tax payment. Circumstances that could be considered valid include the serious illness or death of the taxpayer or the taxpayer’s immediate family or an event that negatively affects the ability of the taxpayer to make their payment on time, such as a fire, casualty, or a natural disaster.
A penalty waiver provision that is not widely known but can be a successful tool in having penalties waived is the First-Time Abatement waiver. If a taxpayer can show that the late payment was based primarily due to an oversight, and the taxpayer has not been delinquent or faced any tax penalties in the last 3 tax seasons, the IRS may be willing to grant a penalty waiver based on the First-Time Abatement criteria.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS LAW at (619) 595-1655.