What to do When Your Corporate Taxes are Late

Due to all the details and the newness of the formalities inherent with corporations and llc’s, new businesses can be late on filing taxes, especially the initial filing before getting into a routine with their tax advisor. This is troubling when a company is new and has had zero activity and is simply filing a $0 return with no activity for the first year, and you have forgotten to file on time. Well the good news is that you might not necessarily be stuck with a massive late penalty fee, IF you take action as the the IRS does offer relief on a one-time basis. See the following blog post in how to handle this situation.

Remember, once you have your EIN and even if you have zero activity and have not even begun business, you are required to file a federal tax return.

---

To request an S-Corp penalty abatement, the taxpayer can call the IRS or submit the request in writing to the IRS.

The request would be for a First Time Penalty Abatement (FTA).

The IRS first time penalty has a good chance to be removed if the following conditions are met:

To qualify for the FTA waiver, a taxpayer must meet the following criteria:  

• Filing compliance: Must have filed (or filed a valid extension for) all required returns and can’t have an outstanding request for a return from the IRS.
• Payment compliance: Must have paid, or arranged to pay all tax due (can be in an installment agreement as long as the payments are current).
• Clean penalty history: Has no prior penalties (except an estimated tax penalty) for the preceding three years. Note: If the taxpayer received reasonable cause relief in the past, he/she/it is still eligible for FTA.

The taxpayer can write or call the IRS to request FTA. Include all relevant information in the request (taxpayer name, identification number, tax year/period, tax form, and penalty type and amount). Clearly state that the client meets the FTA criteria. Consider attaching client transcripts that prove filing/payment compliance and a clean penalty history.

Tip: Writing to the IRS is often the preferred method to request FTA. 

Other considerations

• FTA only applies to one tax year/period. If a request for penalty relief is being considered for two or more tax years/periods and the earliest tax year/period meets FTA criteria, penalty relief based on FTA only applies to the earliest tax year/period. Penalty relief for all subsequent tax years/periods will be based on other relief provisions, such as reasonable cause criteria.
• If the IRS hasn’t assessed the penalty, for example, a client is filing a return late and failure-to-file and failure-to-pay penalties will apply, the taxpayer may attach a penalty no assertion request to the late-filed return.
• If the IRS doesn't grant FTA, consider taking the case to Appeals. Appeals may make a different decision based on other factors, such as hazards of litigation.

(All info deemed reliable as seen on www.IRS.gov)

(Credit Pathway is not licensed legal or tax firm and is not giving tax advice. You are as always advised to discuss all legal and tax matters with your respective tax and legal advisors).

***This blog is for educational purposes only and as such you are advised to seek out and consult with your legal and tax advisors prior to engaging in any decision making affecting your business.