Due to COVID-19, the due date for filing your 2019 tax return was postponed to July 15, 2020. If you didn’t request an extension of time to file or send in your tax return by July 15, the IRS may charge a failure to file penalty. If you didn’t pay your taxes by July 15, the IRS may also charge a failure to pay penalty. If you mailed a payment or tax return to the IRS on or before July 15, it may still be unopened in the backlog of mail the IRS is processing due to COVID-19. The IRS will process your tax return and payment with the date the IRS received it.
In some cases, the IRS will waive the penalties for filing and paying late. However, you’ll need to ask the IRS to do this. The IRS will consider the following situations for waiving these penalties:
Let’s explore each option to see which one is right for you.
Reasonable Cause – You have a reason for not filing or paying on time, including:
- You exercised ordinary business care and prudence but were nonetheless unable to file or pay on time.
- You had matters beyond your control that left you unable to file or to determine the amount of deposit or tax due.
- You didn’t receive the necessary financial information.
- You didn’t know you needed to file a tax return even though you made efforts to find out.
- You had a death in your immediate family.
- You or a member of your immediate family suffered a serious illness that kept you from handling your financial matters.
- You lost your tax documents in a fire or some other disaster.
This list is not exhaustive. Other situations may also qualify for reasonable cause relief. When you ask the IRS to remove penalties for a reasonable cause you should explain in writing, with any supporting documentation, what issue(s) you faced and why the issue(s) caused you to file your tax return or pay your taxes late.
Depending on your reasons, you may also need to explain how you’ve corrected the situation so you won’t have problems filing and paying on time in the future.
Administrative Waiver – The IRS has the authority to grant an administrative waiver in certain situations. First-time abatement is one example. The IRS may remove failure to file and failure to pay penalties under its First-Time Abatement policy if:
- You didn’t previously have to file a tax return, or you have no penalties for the three tax years prior to the tax year in which you received a penalty;
- You filed all currently required tax returns or filed an extension of time to file; and
- You have paid, or arranged to pay, any tax due.
Another example of an administrative waiver involves a taxpayer’s reliance on advice from the IRS. If you received incorrect verbal advice from the IRS, you may qualify for administrative relief of penalties. You should provide detailed information including:
- What information you requested;
- When you requested it;
- How you requested it (over the phone, in person, etc.);
- Who you requested it from, if known (name, unique identifying number); and
- The oral advice you received.
Statutory Exception – If you received incorrect written advice from the IRS, you may qualify for a statutory exception to the failure to file and/or the failure to pay penalties. If you feel you were charged a penalty because of erroneous written advice you received from the IRS, you should send the following items with your request for penalty relief:
- A copy of your written request for advice;
- A copy of the erroneous written advice received from the IRS; and
- If applicable, the report from the IRS listing the penalty that relates to the incorrect advice.
- Generally, you should file a Form 843, Claim for Refund and Request for Abatement, to request penalty relief based on incorrect written advice from the IRS.
What if the IRS denies my penalty abatement request?
If the IRS rejects your request to remove a penalty, you may be able to request a conference or hearing with the IRS Independent Office of Appeals. You have 30 days from the date of the rejection letter to file your request for an appeal.
You can file an appeal if all the following have occurred:
- You received a letter that the IRS assessed a failure to file and/or failure to pay penalty to your individual or business tax account;
- You sent a written request to the IRS asking them to remove the penalty;
- The IRS denied your request to remove the penalty (penalty abatement); and
- You received a Notice of Disallowance, which gives you your appeal rights.
Clergy Financial Resources offers several options to help you with your tax questions or filing. Pro Advisor below is a great option to get started.
- Pro Advisor I Tax Support
This support service provides you comprehensive answers to your notice questions. This support service is available at a flat rate of $45.00 for each 30-minutes session.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
For more information or if you need additional assistance, please use the contact information below.
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