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CONTACT: Sherrie Handrinos
Tips for taxpayers facing tax penalties
SOUTHFIELD, Mich. – It has been over two months since the dreaded tax deadline passed, but many taxpayers are still dealing with repercussions for failing to file on time, failing to pay taxes owed and various other penalties related to Federal, state, and local tax matters.
“If you’re getting a return and still haven’t filed your taxes, there’s no reason to panic,” said Venar Ayar of Ayar Law Group. “As long as you file within three years of the deadline, you’ll still receive your return. But the late-filing penalty for taxpayers who owe additional tax can be 10 times higher than the late-payment penalty, and the longer you wait, the worse it gets.”
Taxpayers who owe money should still file their return as soon as possible, even if it isn’t possible to pay the bill right away. The late filing penalty is 5% of the additional taxes owed for every month the return is late, up to a maximum of 25%. If filing more than 60 days after the due date, the minimum penalty is $135 or 100% of the unpaid tax, whichever is smaller.
Taxpayers could also face a late payment penalty if they did not pay additional taxes owed by April 15, whether they filed an extension or not. The late payment penalty is 0.5% of the additional tax owed amount for every month it remains unpaid, up to a maximum of 25%.
In the meantime, the IRS will send several reminders to file. If ignored, the IRS may then file a substitute return on the taxpayer’s behalf, which may not grant every deduction or credit the taxpayer is entitled to.
The IRS can grant a penalty abatement if it falls into one of four categories: reasonable cause, statutory exceptions, administrative waiver and correction of service error.
To meet a reasonable cause waiver and get your penalties waived, the standard requires that taxpayers have exercised “ordinary business judgment and care” in tax obligations but still failed to comply.
Depending on the taxpayer’s history of compliance, it might be also possible to request an administrative waiver known as a first-time abatement.
First-Time Abatement requests are extraordinarily simple, and should not require any assistance from a tax professional to complete. All taxpayers need to do is fill out form 843, write “first-time abatement requested” in the explanation section, and mail it to the appropriate address.
Taxpayers can download an IRS form 843 and fill it out themselves, or contact a tax lawyer to have it taken care of professionally.