June 12, 2019

The IRS recently issued out a warning to taxpayers who owe tax and have not filed their 2018 tax return, or a valid extension, to act before Friday, June 14, before facing higher penalties. Although the IRS lowered the threshold for imposing under withholding and underpayment penalties earlier this year during tax season due to the complications in the 2017 tax law and various changes it made in the withholding rules, the leniency did not apply to the failure-to-file penalty.

Under section 6651 of the Internal Revenue Code, a failure-to-file penalty is assessed if a taxpayer has unpaid tax and fails to file a tax return or request an extension by the April due date. This penalty is usually 5 percent of tax for the year that’s not paid by the original return due date. The penalty is charged for each month or part of a month that a tax return is late. But, if the return is more than 60 days late, there is a minimum penalty, either $210 or 100 percent of the unpaid tax, whichever is less.

However, the IRS is not completely heartless in the application of the failure-to-file penalty. The IRS recognizes special deadlines that affect penalty and interest calculations for certain taxpayers who qualify, such as members of the military serving in combat zones, taxpayers living outside the U.S., and taxpayers living in presidentially declared disaster areas.  Taxpayers in combat zones, such as members of the military, can extend the filing deadline and find the details of the extension in Publication 3, Armed Forces’ Tax Guide.

As for taxpayers who live and work outside the U.S. and Puerto Rico, or on military duty, the deadline to file is June 17. They also have until June 17 to file Form 4868 for an extension until October 15.  However, extension filers must keep in mind that an extension of time to file is not an extension of time to pay any tax due.  When taxpayers who reside or have a business in a presidentially declared disaster zone, the IRS can postpone certain deadlines for those taxpayers. If the affected taxpayers receive a late filing or late payment penalty notice in the mail from the IRS and have already filed or paid by the deadline stated in the IRS news release of postponement of the deadlines for filing and/or paying, they should call the telephone number on the notice to see if the IRS can abate the tax penalty in the wake of the disaster.

There’s another silver lining for taxpayers in terms of penalty relief.  Taxpayer who have filed their taxes, paid on time, and have not been assessed any penalties for the past three years may qualify to have the penalty abated.  Taxpayers who do not qualify for the first-time penalty relief can still qualify for penalty abatement if their failure-to-file or pay on time was due to reasonable cause and not due to willful neglect.

If you have questions about whether you qualify for the IRS first time abatement or need assistance with an imposed penalty that seems misapplied, the Enterprise Consultants Group’s tax advisors are available to assist you. Please contact us today online or at (800) 575-9284 to discuss your case.

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