Are you an individual or business owner behind on tax payments to the IRS? Has the COVID-19 Pandemic negatively impacted your income and ability to pay your liabilities? You may be able to use a first-time penalty abatement waiver or just-cause defense to reduce the penalties due.
You can apply for a first-time penalty abatement if you have filed and paid all returns and taxes previously but currently have a failure to file, failure to pay, or failure to deposit penalty. But this waiver can only be used every three years, so be sure to analyze if the penalty is worth losing the opportunity to use this in the near future.
A reasonable cause defense can be used to explain your situation and prove that you tried to meet the requirements, but a situation beyond your control prevented you from being able to file or pay timely. Examples of reasons can include:
- Death, serious illness, or absence of a person who would have information needed to file.
- Fire, casualty, natural disaster, or disturbance – often the IRS proactively names situations that occur as natural disasters and extends deadlines. But if your situation was not due to a widespread situation, you will need to explain the situation to support this reason.
- Inability to obtain records needed to file or pay amounts due – This is especially true due to many shutdowns as a result of COVID-19.
- Erroneous advice or difficulty understanding legislation – so much legislation came about quickly with little guidance (and the information often came months after the legislation was approved).
Taxpayers have had multiple options available to them in the past to clear tax obligations including extensions to file, installment agreements and offers in compromise requests. However, the Taxpayer Relief Initiative announced in November 2020 has given greater flexibility with these agreements to help reduce or waive penalties.
If you owe past tax to the IRS and haven’t yet applied for a first-time penalty abatement or a reasonable cause defense, be sure to talk to your tax advisor to see about
using these options to help you with your tax situation.
If you need to reach us, you can call 310-534-5577 or e-mail us at [email protected].
