In a recent article for Industry Today, James Pickett discusses the most common types of penalties issued by the Internal Revenue Service (IRS) each year. Of the 40 million penalties issued in 2017, 26 million involved three common penalties: delinquency (failure-to-file), failure-to-pay and failure-to-deposit employment taxes. These three penalties can be quite costly for individuals and businesses in the manufacturing world, Pickett cautions. For example, a $100,000 unpaid tax liability on a return filed late could, in some scenarios, ultimately result in $47,500 of penalties.
Manufacturers can request “abatements,” or reductions in penalty assessments, for these three penalties under two basic provisions named in the Internal Revenue Manual (IRM). These provisions are the “first time” abatement, which allows for relief for taxpayers who are facing one of these penalties for the first time, and the “reasonable cause” abatement, which allows for relief if the taxpayer can establish a reasonable cause for their inability to comply.
Some key factors the IRS may consider for reasonable cause abatement are: fire, casualty, natural disaster or other disturbance; inability to obtain records; erroneous advice from or reliance on someone else; ignorance of the law; death, serious illness or unavoidable absence; and other factors. When requesting an abatement based on reasonable cause, manufacturers should be able to answer:
- What happened and when?
- What facts and circumstances prevented filing a return, paying a tax or making a tax deposit?
- How did these facts and circumstances result in noncompliance?
- Once the facts and circumstances changed, what attempt did you make to comply and was this attempt made within a reasonable time frame?
“IRS penalties can present significant costs to manufacturers, which makes it important to understand the process to reduce those costs through abatement and what reasons for a violation inform the IRS’ decision. It can be as simple as a call to the IRS or a letter to the IRS Service Center, which is assuredly worth saving the cost of the full penalty.”
To view the full article, please click here.