TAS Tax Tip: Why Do I Owe a Penalty and What Can I Do About It?
I sent a payment to the IRS. Why did I get a bill?
If you mailed a payment 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 payment with the date the IRS received it.
Do not cancel your check, and make sure funds are available for when the IRS processes your payment.
I haven’t sent a payment, but I need to. What are my options?
You may mail a check or money order to the IRS. However, to avoid processing delays while the IRS continues to process the backlog of mail, other payment options are available. For example, you may pay online from your bank account using Direct Pay or pay using your debit or credit card.
If you are unable to pay now, our website’s Get Help pages have a wealth of information about various payment options and will guide you through why penalties are charged and, when appropriate, how to request a reversal of those charges, along with steps you can take to avoid the same issues next year.
First, it's important to understand that applicable penalties and interest will continue to accrue until the account is paid in full, so the sooner you pay the balance, the less you will have to pay in penalties and interest.
Why did the IRS charge me penalties for filing and paying late?
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.
For more information about these penalties and how they are calculated, visit Common Penalties for Individuals.
How can I dispute these penalties?
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 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 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 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.
Refer to Penalty Appeal Eligibility and Publication 4576, Orientation to the Penalty Appeals Process for more details.
What else do I need to know?
The IRS will continue to charge failure-to-pay penalty up to 25% in total or until the tax is paid in full, whichever comes first, so you may want to wait to request penalty relief until after you pay all of the tax due, especially if you are requesting first-time abatement.
If the IRS removes a penalty, the interest charged on that penalty will also be reduced or removed. However, if there is still a balance due interest will continue to accrue until the account is paid in full. See the Interest for Individuals page for additional interest information.
Taxpayer Advocate Service Assistance
Taxpayer Advocate Service (TAS) can assist taxpayers who find themselves in economic hardship or are dealing with IRS tax problems they’ve been unable to resolve directly with the IRS through normal channels. Learn more about when to call TAS for assistance and how we may be able to assist you.
Currently, TAS is open to virtually serve taxpayers who find themselves in hardship situations or dealing with IRS tax problems they’ve been unable to resolve directly with the IRS. Visit our Contact Us page to learn more.
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