Forgiving & Forgetting a Late Tax Return

TAX ADVICE from Julian Block

(November 4, 2004) My experience as an attorney who provides advice on taxes is that people frequently learn the expensive way that the IRS slaps stiff penalties on tardy taxpayers who miss the deadlines for filing returns or making payments. To get the feds to waive a penalty, you have to convince them that the delay was "due to reasonable cause and not due to willful neglect."

The tax enforcers have long-standing guidelines on what this means. Though the agency tells its examiners to judge each case by its own facts, there are certain circumstances that will generally excuse a late filing or payment.

EXCUSES, EXCUSES

So what cause is reasonable? Here are some IRS examples of generally acceptable excuses.

Records not available: For reasons beyond the taxpayer's control, records necessary to compute the tax were not obtainable.

Late delivery: While the taxpayer mailed the return or payment in time to reach the IRS by the deadline, through no fault of his, it was delivered late.

Bad IRS information: The taxpayer failed to timely file the return or pay the tax after receiving erroneous information from an IRS employee; or the necessary forms and instructions were not provided by the IRS in time, despite a timely request.

Records destroyed: The taxpayer's residence, place of business or business records were destroyed due to a fire, other casualty, or civil disturbance.

Death: The death or serious illness of the taxpayer or a member of his or her immediate family occurred. Where the taxpayer is a corporation, estate, trust or the like, the individual affected must be the person who has sole responsibility for executing the return or making the deposit or payment, or is a member of that person's immediate family.

Absence: The taxpayer is unavoidably absent. Again, in the case of a corporation, estate, trust, etc., the absent person must have had sole responsibility for executing the return or making the deposit or payment.

IRS fumble: The taxpayer can prove that he personally visited an IRS office before the filing date to get information or aid to make out the return and, through no fault of his own, was unable to meet with an IRS representative.

TIP. How can you prove that you were there and did not see someone? Presumably, you do so by the testimony of the person you did not see. This tactic is what the lawyers call "proving a negative." I do not recommend it. Death or serious injury is more persuasive.

Bad advice from a good source: The taxpayer relied on the incorrect advice of a competent tax professional, used normal prudence in determining whether further advice was needed and, as a result, came to the conclusion that a return was not required.

CAUTION. Is there reasonable cause that excuses a late-filing penalty where a taxpayer relies on an attorney or accountant to make a timely filing? No, according to a decision by the Supreme Court.

The justices unanimously concluded that the taxpayer is stuck with the penalty, even when an attorney causes the delay. Congress chose to place the burden of complying with filing deadlines on the taxpayer, not on an attorney or accountant or some other agent or employee of the taxpayer. "One need not be a tax expert to know that returns have fixed filing dates and that taxes must be paid when they become due," the high court pointed out.

Julian Block lives in Larchmont and is a syndicated columnist, attorney and former IRS investigator who the New York Times has called “a leading tax professional.” His “Year Round Tax Savings” shows how to save big money on taxes – legally. To purchase a copy, email: at julianblock@yahoo.com.

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