Failure to File Penalty

Many people think that if they can’t pay for the taxes they owe, their only option is to hide from the IRS. There are a number of options for people who can’t afford to pay the taxes they owe, such as setting up payment plans, but hiding is your worst move! The IRS failure-to-file penalty charges 10 times more than the failure-to-pay penalty. At the very least, file your taxes on time even if you owe money to save yourself a lot of money in fees!

About 33% of penalties charged by the IRS are later removed. The IRS will remove penalties if you have reasonable cause – or a valid excuse for not filing your taxes before they are due. When the IRS removes a penalty, its called Penalty Abatement and if you’ve been charged IRS penalties, you may want to look into filing a penalty abatement to see if you qualify.

Failure to Pay Penalty

Out of more than 140 different penalties the IRS can charge, the failure to pay penalty is one of the most common. When people don’t pay their taxes on time or don’t pay them in full without first setting up an installment agreement – a penalty is charged. Penalties are meant to scare people into following the laws, but the IRS realizes there are legitimate reasons when people are unable to pay their taxes on time.
If you have a reasonable cause for not paying your taxes, the IRS will often remove the failure to pay penalty if you file for a penalty abatement. Tax penalties are automatically imposed on individuals who don’t pay on time, but filing a penalty abatement allows your situation to be reviewed by a real person, and the IRS will analyze each on a case by case basis to determine whether or not to remove penalties.

How to File for a Penalty Abatement

There are three ways to file for an abatement to remove penalties:

1. Send a written request to the IRS explaining why you were penalized and why you feel you should be relieved of the penalties. Request a refund of the penalties.
2. Request an oral interview if you’re unable to clearly state your case in writing and then explain your case verbally.
3. Use IRS Form 843, the claim for refund and request for abatement form provided by the IRS.

Regardless of the method you choose, you want to provide as much information as you can, and include documentation if possible.

If your penalty abatement request is approved, you’ll be able to eliminate most (if not all) of the penalties but not any interest that has accumulated. Penalty abatement is a good option for people who can pay their tax liability but feel they shouldn’t be liable for the IRS penalties. Some of the common reasons for obtaining approval for an abatement of IRS penalties may include:

• Divorce
• Illness
• Incarceration
• Natural disaster, such as hurricane, tornado, flood, etc
• Death in the family
• Theft or destruction of records

Related posts:

1. Tips to Avoid or Reduce the Most Common IRS Tax Penalties
2. Small Business Tax Penalties: What They Are & When They’re Charged
3. Avoiding Penalties From Underpayment of Estimated Taxes

1. Pay your taxes on time: The due date for paying individual taxes is April 15th, if you do not pay your taxes by then you will be hit with the failure to pay penalty. The failure to pay penalty is .5% a month and starts being charged on April 16th if taxes are not paid or paid in full. If the taxes remain unpaid the IRS may increase this to 1% a month. The maximum cumulative penalty this can be is 25% of taxes owed.
2. Enter into installment agreement if you can’t pay in full: The IRS will reduce the failure to pay penalty from .5% to .25% if you enter into an installment agreement to pay back the taxes you owe. The IRS rewards those taxpayers that come forward and work with them on their tax problems, which can be seen by them charging lower penalties. It is common for individuals to not be able to pay taxes in full and the IRS has very good mechanisms in place to help these people get back into full compliance with the IRS.
3. File your taxes on time: One of the worst things you can do and rack up huge penalties is not filing your taxes on time. This rule mainly only applies to those individuals that owe taxes. For each month that goes by and you owe taxes and have not filed a tax return, you will be charged 5% for the failure to file tax penalty. This penalty will max out after 5 months and reach a maximum of 25% total penalty. Many people don’t file their taxes because they cannot pay what they owe, this is the worst thing that can be done since the failure to pay penalty is 10 times less than the failure to file penalty.
4. File for an extension if you can’t pay on time: If you can’t file on time you can file for a 6 month extension. One thing to know is that when you file for an extension to file, this does not allow you an extension to pay. You still must pay at least 90% of the taxes you owe by April 15th. If you don’t pay the taxes by April 15th and you filed for an extension, you will be charged with the failure to pay penalty. The failure to pay penalty is significantly less than the failure to file, so even if you can’t pay or file on time this will save you quite a bit of money in penalties.
5. Remove Penalties: If you have already been charged penalties you can possibly have the removed through penalty abatement. If you can show the IRS that you have “reasonable cause” for not filing or paying your taxes, they will likely remove the penalties. The IRS removes about 30% of the penalties it charges each year.

The best thing you can do in order to reduce or prevent tax penalties is to take action to solve your problem as fast as possible. If you have any questions you should either contact the taxpayer advocate (877-777-4778) or contact a tax professional to help you. Tax penalties are unnecessary and knowing the common causes of these penalties can help you avoid them in the future.

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Related posts:

1. Tax Penalties That Can Be Removed, and How
2. Small Business Tax Penalties: What They Are & When They’re Charged
3. Last Minute Tax Tips for Your 2009 Tax Filing