When to Submit a Reasonable Cause Request for the Failure to File Tax Penalty

If a taxpayer does not file by the due date, then they are subject to the failure to file penalty unless they can show that any delay was due to reasonable cause and not willful neglect. Accordingly, it is essential that every taxpayer knows tax deadlines. The IRS provides a list of 2012 tax calendar due dates (click here to view list).

The Failure to File Penalty and Non-Pass-Through Entities

The failure to file penalty runs at 5% per month, up to a maximum of 25%. Additionally, the IRS will tack on a fee of the lesser of $135.00 or the amount of tax due. For a greater understating of the failure to file penalty see our blog on November 7, 2011 titled I Cannot Pay the Tax Reported on my Tax Return. Should I file?

The Failure to File Penalty for Pass-Through Entities

The failure to file penalty has a different application with pass through entities. A pass through entity, such as a partnership or S-Corp, “passes through” taxable income to its owner and pays not taxes. For example, a partnership files its own tax return and then distributes income and distributions to its partners through the use of a K-1. Each partner then reports his/her share of income and distributions on a Form 1040.

The penalty on a pass through entity is $195 for each month or part of a month, up to a maximum of 12 months, the failure continues, multiplied by the total number of partners/shareholders during any part of the tax year. Accordingly, the penalty maxes out at $2,350.00 per partner or shareholder.

When to Submit a Failure to File Penalty Abatement Request in 2011

The 2011 instructions to Partnership Returns (Form 1065) and S-Corp and Corporations (Form 1120-S and Form 1120, respectfully) direct taxpayers to wait until they receive a late filing notice from the IRS before sending a reasonable cause explanation. In earlier years, taxpayers were instructed to attach the explanation to the late filed return. Individual taxpayers should include a reasonable cause explanation with Form 1040.

Todd Unger, Esq. is a tax attorney devoted to resolving tax disputes and has helped taxpayer’s remove or reduce penalties. If you need help applying for tax penalty reductions, aka penalty abatement, please contact us today!

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