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The September 15 tax deadline has come and gone, but many had trouble getting their taxes filed and paid on time. The IRS offers relief, but even some who followed the rules will still receive penalties.

The mid-September milestone included several tax deadlines for closely held businesses. The American Institute of  Certified Public Accountants (AICPA) urged the IRS to consider an automatic waiver of failure-to-file and failure-to-pay penalties for taxpayers still affected by the coronavirus pandemic by that deadline. While that didn’t happen, the AICPA indicates that the IRS has been willing to work with taxpayers who need relief. Taxpayers and/or their tax practitioners who made “a good-faith effort to meet the filing…but are unable to do so due to COVID-19,” were instructed by the AICPA to write “COVID-19” in an attachment to the return briefly describing the reason they cannot meet the deadlines, or, if possible, should write “COVID-19” at the top of the tax return to indicate the need for penalty relief. Some states and/or tax software required a state-specific disaster code issued by the Federal Emergency Management Agency (FEMA) as well.

AICPA recommends that any affected taxpayer who requested penalty relief due to COVID-19 and receives a late-filing or late-payment penalty notice from the IRS gather the appropriate facts and call the telephone number on the notice to resolve the issue.

Penalty relief due to reasonable cause isn’t a new consideration. It’s a concession that can be used in cases of natural disasters, serious injury or illness affecting the taxpayer, or an inability to obtain tax records. The IRS will consider factors that include your reason for incurring the penalty, your compliance history (Have you missed tax deadlines before?), the length of time it took you to respond, and whether the circumstances were truly outside your control. More information from the IRS can be found here. For questions, feel free to contact us.

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