Definition and Removal of IRS Failure to File Penalty Submitted by: Back Taxes Help, LLC
(OPENPRESS) November 11, 2010 --
What Is the IRS Failure to File Penalty?
The IRS Failure to File Penalty is civil penalty assessed by the IRS for individuals who fail to file a tax return. It is one of the most common penalties assessed. Although filing a tax return is not mandated in all cases, if you owe taxes and do not file, the penalty can be quite devastating. This penalty is 5% per month on any tax balance up to 25% total (after 5 months).
Have you been slapped with a Failure to File Penalty by the IRS? Simply put, it means that you now owe more money than before if you had any taxes owed this year. That being said, the IRS does realize that there are times when a taxpayer cannot stay compliant. In this case, they give them the chance to remove the failure to file penalty. Believe it or not, approximately 1/3 of all tax penalties are removed at a later date.
So How Can You Remove this Penalty?
Well, first you want to make sure you file. Even if you cannot pay the total taxes owed, you should file immediately not only because you can prevent this penalty from accruing, but also because you can claim applicable tax credits and tax deductions that you otherwise would not necessarily get if the IRS filed a "Substitute for Return (SFR)," or a tax return for you.
If you have filed at least you can begin to tackle removing or reducing the penalty if you have good reason. The IRS is not going to remove your penalty for no reason. You need to prove to the IRS that you had reasonable cause for not filing you return by the deadline. If you can successfully do so, your failure to file penalty will be reduced or removed altogether. Those who are having a hard time determining reasonable cause should get in touch with tax accountant, Enrolled Agent, or Tax Attorney.
What is reasonable cause? This is pretty much any excuse that the IRS is willing to accept that is reasonable and does not show "willful neglect." It can be anything from a death in the family to a natural disaster resulting in the loss of files. Some other examples of reasonable cause with failing to file on time may be:
The return was mailed but not sent to the right IRS office
You were given incorrect information by an IRS employee or a tax professional
You experienced a fire, flood, or some other natural disaster that made sending the return on time difficult
You experienced a major illness that prevented you from filing on time
The IRS handles each case one at a time. You have to show reasonable cause and hope that your officer is willing to accept what you say. It should go without saying that you do not want to lie to the IRS. If you do not have reasonable cause you should not make something up – this is fraud and the IRS will catch you.
It is a good idea to consider penalty abatement if you believe that it can work in your favor. This is particularly true if penalties make up a sizable portion of your balance.
Removing the IRS failure to file penalty is something that you may need help with. Hiring a tax professional may cost you money, but you will save much more if they can help you remove failure to file penalties. Before you give in and pay the penalty, think about whether or not abatement is a reasonable option. If it is, move forward on this right away.