IRS Hitting You With A Fine Or Late Fee? Don’t Fret – A Consumer Tax Advocate Says You Still Have Options

IRS hitting you with a fine or late fee? Don't fret – a consumer tax advocate says you still have options

For many taxpayers, it doesn’t end on Tax Day.

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Rita W. Green, University of Memphis

Tax Day has come and gone, and you think you filed your return in the nick of time. But several weeks later you receive that dreaded letter in the mail from the Internal Revenue Service informing you of missing the deadline and failing to pay your tax bill on time. Your assessed tax penalty, based on what you owe, is $450.

This type of scenario is quite common, since penalties are assessed for over 40 million taxpayers each year, according to the Taxpayer Advocacy Panel’s 2020 report. There are numerous IRS penalties, but the three most common ones are failure to file a return on time, failure to pay the estimated amount owed from the past year and failure to pay after filing.

What many people don’t know is that the IRS offers several ways to reduce late fees and other penalties. Yet only a fraction of those who are eligible take advantage of them.

As a professor of accounting and a consumer advocate, I tend to be concerned when I identify a benefit that has been underutilized. I also serve as a volunteer on the Taxpayer Advocacy Panel, an independent body that aims to help the IRS improve based on outreach and feedback from the general public.

We recently discussed the low utilization of a key penalty relief program, which prompted me to write this article.

Applying for penalty relief

The main form of relief the IRS offers to taxpayers is the first-time penalty abatement policy, which was introduced about two decades ago. It covers penalties related to a failure to file, a failure to pay or a failure to deposit the estimated taxes owed.

This program can lead to a reduction or even removal of a taxpayer’s penalty – though not the tax liability – if you meet certain conditions:

  • You didn’t previously have to file a return – because you earned too little money, for example – or you’ve had no penalties for the previous three years.

  • You filed all required returns or extensions.

  • You paid or arranged to pay any tax due.

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Disclosure: This article is republished from The Conversation under a Creative Commons license.

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