Saturday, March 17, 2012

'My Dog Ate It' And Other Tax Excuses

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There are many?tax excuses, but some don’t work. The IRS must be tired of hearing them, for this year some tax forms instruct taxpayers to await penalty notices before offering any excuses.

For many years, you were generally supposed to attach a “reasonable cause” explanation to a late return when you filed it. Now, no matter how late you are, the IRS says you should not attach an explanation when you file. Rather, you should wait to see if you get a penalty notice. If you do, you can offer your dog-ate-my-homework excuse then.

We’re not talking about every tax form or every penalty. We’re only talking about tax returns for partnerships and corporations. In both cases, there are penalities if you file late. The penalty is 5% of the net amount due for each month the return is late. The total penalty can’t exceed 25%.

Starting with 2011 forms, the instructions tell you to offer your written explanation only if you receive a notice imposing late-filing or late-tax-payment penalties.?Don’t attach an explanation when the return is filed. The IRS will determine if you meet the reasonable cause criteria.

If you can show your lateness was due to reasonable cause and not due to willful neglect, no penalty.?Reasonable cause?means exercising ordinary business care and prudence but you were nevertheless unable to file the return within the prescribed time.

There’s also penalty for failing to pay on time. There too, you won’t be penalized if your failure is due to reasonable cause and not to willful neglect. A failure to pay is considered due to reasonable cause if you exercised ordinary business care and prudence in providing for payment of his tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship if he paid on the due date.

What about individuals? Don’t worry, you can still offer your statements why you shouldn’t be penalized when you are filing a personal income tax return (any of the Forms 1040).

For suggestions, see:

‘Sick Lawyer’ Excuse Not Enough To Escape IRS Penalties

More Tax Defenses: “I Forgot!”

Tax Defense: “I Have ADD”


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