How to address IRS business tax penalties
4 min read
October 03, 2017 • Block Advisors
IRS business tax penalties, at a glance:
- There are many types of IRS tax penalties.
- Reasonable cause and first-time abatement are the most common ways to get penalties removed.
- It’s common to have to appeal penalty relief denials to get the IRS to look at your specific facts.
You can get expert help with IRS business tax penalties. For this year’s return, if you receive an IRS notice our small business tax team at Block Advisors can review, research, and respond on behalf of your small business by adding Business Tax Audit Support to your return for a nominal additional fee.
What you need to know about IRS business tax penalties
The IRS issues about 40 million penalties each year. There are almost 150 types of IRS penalties, but the most common ones for businesses are caused by filing late, paying late or not as required.
The IRS offers four options for taxpayers to get their business tax penalties removed — if the circumstances fit.
You or your tax professional will need to investigate which options your business may be able to use, and request penalty relief from the IRS.
Here’s how it works.
How to address IRS penalties on your business return
1. Understand your options, based on your facts.
- Tax penalties are based on the taxes your business owes, so make sure you get the tax right first. Start by double checking your return. Consider amending your return if the taxes are incorrect.
- Understand the four penalty abatement options.
- Contact the IRS to get the facts on your penalties:
- Penalty type(s)
- Amounts owed
- Year(s) involved
- Once you have all the information, you can identify which penalty relief options are best for your situation. Keep in mind that more than one option may be applicable.
2. Request penalty abatement from the IRS.
- Put together your penalty abatement request for the specific option you’re pursuing.
- Send your request to the proper unit at the IRS.
- Use the right method to submit your request:
- If you’ve already paid the penalty, you may have to submit a claim-for-refund form.
- If you’re requesting an administrative waiver for penalty abatement, you may be able to handle the request with a phone call to the right IRS function.
- Respond quickly to any IRS requests for documents supporting your abatement request, and be prepared to argue the merits of your position.
3. If the IRS denies your request, appeal the decision by the deadline, and argue your position with the IRS Appeals Office.
- Most appeals requests should be filed within 30 days of the IRS denial of the original appeal.
- You’ll need to provide a chronology of events that caused you to file or pay late. Be specific on dates and provide backup documentation to support your chronology.
- You may need to provide the IRS with additional legal arguments, such as a court case that supports your position.
- The IRS will ask you how the unforeseen events affected your life and/or work. Be prepared to show how you couldn’t perform other critical tasks, such as making necessary payments for bills and utilities, and meeting personal and work obligations.
4. Prevent future IRS business tax penalties.
- Make sure you avoid the consequences of your small business not paying taxes by filing accurately and paying business taxes on time in the future.
How to get help
Your H&R Block tax professional can help you figure out which penalty abatement option you can pursue – and help you request it from the IRS.
Bring these five items to your appointment
- A copy of your IRS notice(s)
- A copy of the tax return in question
- A chronology of the events surrounding the time of the issue
- A history of any past penalties
- Documents that support your reason for abatement