There are numerous tax excuses that taxpayers come up with to avoid facing tax penalties, especially for filing their returns late. Some of these excuses are well formulated and believable, unfortunately, some don’t just work. It is for this reason that some tax forms have instructions asking taxpayers to hold onto the excuses and wait for penalty notices from the IRS to provide these defenses.
For years now, many taxpayers have been getting away with late filing of their returns by simply attaching some explanations on why it was impossible to file their returns in time. The IRS appears to have read and listened to all the excuses and made up its minds not to give taxpayers further reasons to get away with late filing of their returns by providing “reasonable causes.” The IRS no longer requires that you attach any explanations when filing your returns. However, if you get a penalty notice, you are free to give any excuse you deem just.
The tax returns affected by the changes are only for corporations and partnerships that call for a penalty whenever they are filed late. The penalty in this case is normally 5% of the due amount for every month that you don’t meet the filing deadline. However, the overall penalty shouldn’t be over 25%.
These new changes were introduced in 2011 and require written explanations which should only be offered after you have received a notice that imposes overdue returns filing or penalties for late payment. Attaching such explanations while filing was stopped and it is upon the IRS to determine whether you qualify for the reasonable cause criteria or not.
You are exempted from the penalty only if you can prove that your lateness wasn’t because of negligence, but because of reasonable causes. Reasonable cause for business is when you are taking care of the business with care, but unable to file the returns within the set time frame.
Other than late filing, you can also be penalized by the IRS if you pay your taxes late. This penalty can as well be avoided if it wasn’t intentional but due to a reasonable cause. Reasonable cause could be if you exercised prudence in the payment of your tax liabilities and operated your business with care even though you were not able to pay your taxes. Another reasonable cause can be, if paying the taxes could have plunged the business into hardship.
As an individual, you can still offer your excuses why you should be exempted from the penalty while filing your income tax returns.