IRS to Waive Failure-to-Pay Penalty

Today the IRS issued notice concerning the failure-to-pay penalty that is assessed if we do not have our tax bill paid by April 15. This penalty is normally assessed even if the tax return is extended. This is because an extension is an extension to file, but not an extension to pay the tax due. That penalty is 0.5% of the amount due for each month or fraction there-of that payment is late.

This year has been difficult for most taxpaying citizens. Due to late changes in the 2012 tax law that didn't happen until January 2, 2013, no one could file taxes until late January. A large percentage of taxpayers could not file their taxes until roughly the first of March. The hold-up was not just the ability to file the return, but in some cases even to calculate the return. While a taxpayer could assemble their documentation on time, we tax return preparers were held up - and now dumped on!

So what is the relief? Taxpayers may not have to pay that penalty if they meet all of the following conditions:

• The tax return includes one of the 30 forms or schedules that were delayed.
• An extension is filed for the tax return.
• The extension includes an estimate of the ultimate tax liability.
• The estimated tax liability due is paid by April 15 based on the application for extension.
• The final additional tax liability is paid by the extension due date (October 15 for individual filers).

Unfortunately, the IRS has an automatic system that will issue the penalty letter. But then the taxpayer can request that the penalty be waived ("abated" in IRS lingo) and the IRS will abate the penalty.

In all, that is a nice thing. And believe it or not, such nice things from the IRS are not that rare.

This post is based on early information and will be updated if corrections are required.