One of the biggest, yet most misunderstood, is the defense that a tax position was based on reasonable cause. The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy. The Administrative Waiver and First Time Penalty Abatement Program allows you to apply to have a penalty removed if it’s the first time that you’ve ever faced it, or if you received “incorrect oral advice from the IRS”, which lets you qualify for the administrative relief component of the program. Resolution percentages exclude program fees. Unfortunately, the penalties here are also extremely complicated, so I’m just going to briefly outline what you may be facing, which could include: One quick thing to note is that even if you use a payroll service or you outsource the payroll tax work to someone like a CPA, tax attorney, or other employee, you’re still responsible for ensuring that payroll tax returns are filed and paid correctly, and timely. Commentdocument.getElementById("comment").setAttribute( "id", "a3a935a4d06979232dfa85633f162163" );document.getElementById("f4346a53f7").setAttribute( "id", "comment" ); Monday-Friday: 8 am - 8 pm Saturday: 9am - 5 pm Sunday: 1pm - 5pm. The IRS will not offer them to you, even if you qualify. IRS Form 1040-ES provides instructions for how to calculate your required annual payment necessary to avoid the underpayment penalty. IR-2020-59, March 25, 2020 WASHINGTON — To help people facing the challenges of COVID-19 issues, the Internal Revenue Service announced today a sweeping series of steps to assist taxpayers by providing relief on a variety of issues ranging from easing payment guidelines to … This Guide walks you through each type of IRS tax penalty, clearly explaining when they’re triggered, how much you’re penalized, and what you can do to avoid having to actually pay the penalty (yes, it IS possible to get out of paying IRS penalties!). Here’s how it works – whether or not you filed on time, if you didn’t pay your taxes in full by the original April 15th deadline, then the IRS will send you a bill in the mail, via certified mail, which details the exact amount of money you owe, and with a new deadline for paying up. Additionally, AICPA asks that the IRS reassess the impact of the coronavirus during 2021 and determine the appropriateness of offering similar penalty relief for the 2020 tax year. IRS Underpayment Penalty Waived for Millions in 2019 Last updated 08/17/2020 by Andrew Latham The IRS has just announced it is waiving the estimated IRS underpayment penalty for millions of taxpayers who fell short this year. There are all sorts of ways to trigger an IRS tax penalty, but here’s a list of the most common problems that generates additional fines and fees from the IRS: As you can see, the list of potential IRS penalties is quite long, and can be triggered in a variety of ways, but the most common penalties occur when you pay your taxes late, or when you pay less than the amount of money that the IRS thinks they’re owed. This is where things get tricky, as you’ll need to convince the IRS agent who reviews your case that you made a simple mistake, and that you had good logic behind the calculations which determined your under-calculation. 6656 for failure to make a deposit of employment taxes (including withheld income taxes, taxes under the Federal Insurance Contributions Act, and taxes under the Railroad Retirement Tax Act) related to the new credits (Notice 2020-22). To get help from the IRS directly, you can call their toll-free customer service phone number at 1-800-829-1040. My personal opinion is that the benefits to hiring an expert far outweigh the costs, which is why I recommend that all of my readers call the Tax Debt Relief Helpline to get their assistance in dealing with their IRS problems. Waiver of Underpayment Penalty. It’s a much better idea to confront your tax issues head-on, pay whatever amount you can afford, and enroll in an IRS Installment Agreement to prevent yourself from getting hit by this most unfortunate of penalties. The rates will be: 5% for overpayments (4% in the case of a corporation) 2.5% for the portion of a corporate overpayment exceeding $10,000 One thing to keep in mind about IRS penalties is that you will only ever receive one if you actually owe taxes, and don’t end up filing and paying them on time. Our team can provide sound tax advice and help you complete all necessary forms and documentation. Keep in mind, the IRS has a limited number of agents and doesn’t want to spend time reviewing erroneous appeals claims; if you truly do deserve to be hit with a penalty, but you keep pushing to have it removed, all you’re going to do is piss them off and invite further inspection (perhaps via additional investigations or even an official Audit, which could end up costing you even more money!). To get assigned a tax penalty, you have to owe the IRS money, and fail to pay up by the deadline, or you have to get caught attempting to get out of paying the money you owe by hiding information, failing to account for income, lying about expenses, or attempting some kind of tax fraud. Anytime that an entity fails to fulfill this obligation, the IRS can hit them with a significant tax penalty. Essentially, this program lets you say that you tried to “meet your Federal tax obligations but were nevertheless unable to do so”, which means you’ve going to admit that you did something wrong, but make the claim that you’re sorry and that it won’t ever happen again. Finally, if you have any other questions about taxes or the IRS, please feel free to post them in the Comments section below and I will get you a response as quickly as possible. People found “not willful” face a much smaller potential issue, because the IRS offers something called the “Streamlined Filing Compliance Procedures” or SCFP Program, which is essentially the best option for anyone with unreported foreign assets, and which carries much smaller penalties. In addition to the criminal penalties mentioned above, you can also be charged with a civil penalty as well, which can add up to 75% of your unpaid taxes attributable to fraud, in addition to whatever taxes you already owed. Generally, an underpayment penalty can be avoided if you use the safe harbor rule for payments described below. If you get accused of tax fraud or tax evasion, my advice is to immediately hire an attorney who specializes in these sorts of cases so that they can represent you in court. Unfortunately, the worst part of the reasonable cause process is that you’ll basically be at the mercy of whoever reviews your case at the IRS, and if they disagree with your argument, then they can simply say “Too bad”, and you’ll still need to deal with the penalties applied to your account. To save you some time if you don’t need all the details, here’s a simple breakdown of how the process works – the IRS charges interest on any unpaid balance, according to the following rules: To make sure you don’t turn your annoying tax penalty into an absolute nightmare, you’ll want to be absolutely certain that you pay your tax debt and penalties off as quickly as possible, otherwise the interest rules outlined above could turn your small debt into a massive one that becomes virtually impossible to ever pay off. that supports your position so that the IRS can review this information along with your request. Paying an expert to handle your tax debt for you saves you time, money and stress, but most of all, it can prevent you from making your situation even worse by adding additional interest, penalties and perhaps even an audit or jail time. If you’re facing a Foreign Disclosure Penalty, then you should definitely look into the OVDP program because it’s probably going to be your best bet for getting back into compliance, and avoiding the serious repercussions possible for violating relevant IRS rules. To make this calculation accurate, you should plan to submit the IRS Form 2210, which has two different methods for calculating your penalty. The best way to avoid this penalty is to issue estimated payments in four equal amounts, unless your income varies throughout the year. Below is the phone call script I use to negotiate musicians' tax penalties. This rule is altered slightly for high-income taxpayers. To be found in “disregard” for IRS rules requires that they think you were careless, reckless, or intentionally disregarding the rules about how to calculate your return, which again sounds like it requires proving you purposefully avoided properly calculating the amount of taxes owed. There are several different types of penalties for failing to provide foreign information on your tax return, with one type applying to people who have offshore bank accounts, international earnings or inheritances from outside of the United States, while a different one applies to people who are shareholders of controlled foreign corporations. And that’s no joke, because that 5% adds up quickly, especially if you owe a ton of taxes, and especially because it’s so easy to avoid this penalty by simply filing your taxes on time – even if you can’t afford to pay at the time of filing! You can plan ahead by basing 2020's withholding on your 2019 tax bill. If the second attempt by the clearinghouse makes it, then you won’t be hit with the dishonored check penalty, but it goes through after your due date, then you may end up being charged interest and a penalty for late payment, so that’s something to take into account as well. To request the waiver, taxpayers must file Form 2210, “Underpayment of Estimated Tax by Individuals, Estates, and Trusts,” with their 2018 income tax return. For people who aren’t dealing with personal finances, but who are shareholders of controlled foreign corporations, and who haven’t disclosed those details, the penalties can also be quite extreme, including penalties for failing to file the proper forms, penalties for being late on payments, etc. As I mentioned above, if you owe the IRS money and you don’t pay it on time, if you don’t pay as much as the IRS is expecting to receive, or if you get caught attempting to evade paying taxes, then you’re going to get hit with a tax penalty. Your email address will not be published. For the 2018 tax year, the IRS waived the underpayment penalty for any taxpayer who paid at least 80% (rather than the usual 90%) of their total 2018 federal tax obligation by Jan. 15, 2019. But first, let me explain a huge opportunity for anyone facing foreign disclosure penalties! To get an expert’s help handling  your case, call the Tax Debt Relief Helpline now at 1-888-692-7108. Section 6664(c) of the IRC provides that “no penalty shall be imposed . According to the IRS, interest rates on underpayments will remain the same at 5% for the calendar quarter beginning January 1, 2020. Ex: If your second quarter payment was due June 15, 2020, and you paid it two weeks after that due date, the IRS will consider this payment made in the third quarter. Applies for a full month, even if the return is filed less than 30 days late 5. It’s too early to say whether the IRS will reduce or waive the penalty in 2020 or lower the safe-harbor percentages. For 2018 taxes, the IRS lowered the … . 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