Yes, there is a late filing relief option to avoid penalties. The IRS provides several avenues for penalty relief, including reasonable cause relief, the First Time Abate (FTA) waiver, and administrative waivers under specific circumstances.
- Reasonable Cause Relief:
- The IRS may grant relief from penalties if the taxpayer can demonstrate that the failure to file was due to reasonable cause and not due to willful neglect. Reasonable cause is determined based on all the facts and circumstances, including the taxpayer's efforts to comply with the tax law, the reasons for the failure, and the length of time between the event causing the failure and subsequent compliance.
- To qualify for reasonable cause relief, the taxpayer must show that they exercised ordinary business care and prudence but were nevertheless unable to file the return on time. Examples of reasonable cause include natural disasters, serious illness, or death in the family.
- The taxpayer must provide a written statement explaining the reasons for the failure to file and any supporting documentation.
- First Time Abate (FTA) Waiver:
- The FTA waiver is available to taxpayers who have a clean compliance history for the past three years. This waiver can be applied to penalties for failure to file, failure to pay, and failure to deposit.
- The FTA waiver does not apply to all types of penalties, such as those related to information returns or event-based filings.
- The taxpayer does not need to provide a reasonable cause explanation to qualify for the FTA waiver, but they must meet the eligibility criteria, including having no prior penalties (except for an estimated tax penalty) in the past three years.
- Administrative Waivers:
- The IRS may issue administrative waivers in response to specific events, such as natural disasters or other significant disruptions. These waivers provide relief from penalties for taxpayers affected by the event.
- For example, Notice 2022-36 provided administrative relief from certain failure to file penalties for tax years 2019 and 2020, provided the returns were filed on or before September 30, 2022.
- Requesting Penalty Relief:
- Taxpayers can request penalty relief by submitting a written request to the IRS, explaining the reasons for the failure to file and providing any supporting documentation.
- The IRS may also consider oral requests for penalty relief under certain circumstances, but a written statement may be required if the penalty amount exceeds a certain threshold.
In summary, taxpayers have several options to seek relief from late filing penalties, including demonstrating reasonable cause, utilizing the FTA waiver, or benefiting from administrative waivers issued by the IRS. Each option requires specific criteria to be met, and the taxpayer must provide appropriate documentation to support their request.
Sources:
§ 6651. Failure to file tax return or to pay tax
Notice 2012-13
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 9. International Penalties
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 2. Failure To File/Failure To Pay Penalties
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 1. Introduction and Penalty Relief
