Missing a tax filing deadline is a serious matter, and the consequences can be dire. But if you don’t panic and take proactive steps, the IRS offers options to help you get back on track.
Whether you need help filing taxes late, responding to an IRS penalty or resolving an audit, understanding the process and the consequences of missing an IRS deadline is essential.
The federal tax returns are typically due on April 15 of every year. For the most recent tax year (2020), the filing deadline was extended to May 17 due to the coronavirus pandemic. (This extended deadline applies to the 2020 tax year only.)
The IRS considers certain other deadlines as “Time Sensitive” deadlines. These deadlines may include the due date for payment of estimated taxes, payment of assessment balances, filing of amended returns, and petitions for appeals.
If you miss any of these deadlines, the IRS may impose late filing and/or late payment penalties. Depending on the amount of money owed, the IRS may also charge interest.
In addition, the IRS may impose other penalties and disallow deductions, credits, or other benefits.
Penalties for Missing an IRS Deadline
The IRS imposes penalties for both late filing and late payment of taxes.
Late filing of income tax returns is subject to a 5% penalty for each month that the return is late, up to a maximum of 25%.
Late payment of taxes is subject to a 0.5% penalty for each month that the payment is late, up to a maximum of 25%.
For tax returns due after 2020, the IRS may also impose a minimum tax penalty equal to the lesser of $210 or 100% of the tax due.
Resolving the Problem
If you have missed an IRS deadline, the first step to resolving the problem is to file or pay the return or payment as soon as possible.
If you are able to do this, it’s possible to reduce or eliminate the penalties.
If you are unable to pay the amount due in full, you should contact the IRS as soon as possible to discuss your situation.
The IRS may offer you several options for resolving the problem, such as an installment agreement or an offer in compromise.
An installment agreement allows you to make payments over time, up to six years. However, you may be required to make estimated tax payments for the duration of the installment agreement.
An offer in compromise allows you to settle your tax debt for less than the full amount due. This option is generally reserved for taxpayers who cannot pay their tax debt, but there are certain requirements. Each case is reviewed on a case-by-case basis.
It is important to note that in order to be eligible for either of these programs, you must be up to date on all filing and payment requirements.
Requesting Penalty Abatement
If you are unable to pay the amount due, you can request a penalty abatement. The IRS may waive or reduce the late filing or late payment penalty if you can show that there was a reasonable cause for your failure to file or pay the taxes on time.
Examples of reasonable cause may include fire, natural disaster, death, or serious illness of a taxpayer or family member.
To submit a penalty abatement request, you must fill out Form 843, Claim for Refund and Request for Abatement, and provide supporting documentation.
Contesting an Assessed Penalty
If the IRS rejects your penalty abatement request, you may be able to contest the penalty by filing an appeal. The IRS Appeals Office reviews cases on a case-by-case basis and may consider arguments of legal necessity, good faith, and practical problems.
Avoiding Future Problems
The best way to avoid future problems with the IRS is to be aware of the IRS deadlines and file your returns and make payments on time.
If you have difficulty understanding the various filing and payment requirements, or if you need assistance in filing late or paying late, you can contact the IRS directly or seek help from a professional tax preparer or enrolled agent.
In some cases, the IRS may grant you an extension of time to file or pay. An extension of time to file only applies to the due date of the return, not to any balance due.
Finally, make sure to file all of your returns and pay all of your taxes on time. The IRS does not forgive late payments, so it is important to file and pay on time.
Missed IRS deadlines can be serious issues with potentially costly penalties and results. However, if you take action and seek assistance from the IRS as needed, you can resolve the issue. In some cases, you may even be able to reduce or eliminate the penalties. It makes sense to take the time to understand the IRS processes and to take action quickly if you do miss a filing or payment deadline.