Tax
| The IRS cracks down on deadline non-compliance |
| Published Monday, August 17, 2009 7:00 am |
Pay your taxes on time, or you could pay a lot more
The IRS is imposing harsher penalties for companies that do not meet the filing deadlines, including extensions. Corporate penalties have dramatically increased to encourage compliance. In addition, the filing extension for partnerships, estates and trusts has been shortened by one month so that the Schedule K-1 information may be available for the individuals/businesses that rely upon that data for their returns.
Increased corporate penalties
For corporations and S corporations, a penalty may be charged if the return is filed after the extended deadline of September 15th or if the return does not show all the information required.
If no tax is due, the late filing penalty for returns required to be filed after 2008 increased to $89 for each month or part of a month (up to 12 months) the return is late or does not include the required information, multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation's tax year for which the return is late.
If tax is due, the penalty is the amount stated above plus 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. If the return is more than 60 days late, a $135 minimum penalty, or the balance of the tax due on the return, is imposed (whichever is smaller).
Failure to furnish information timely
For each failure to furnish Schedule K-1 to a shareholder when due and each failure to include all the information required on the K-1 (or the inclusion of incorrect information), a $50 penalty may be imposed with respect to each Schedule K-1 for which a failure occurs. If the requirement to report correct information is intentionally disregarded, each $50 penalty is increased to $100 or, if greater, 10% of the aggregate amount of items required to be reported.
Reasonable cause
The above penalties will not be imposed if the corporation can prove reasonable cause. The wording used to describe reasonable cause provisions varies. Some Internal Revenue Code penalty sections require evidence that the taxpayer acted in good faith or that the taxpayer's failure to comply with the law was not due to willful neglect. Generally, taxpayers have reasonable cause when their conduct justifies the non-assertion or abatement of a penalty. Each case must be judged individually based on the facts and circumstances at hand. Reasonable cause does not exist if (after the facts and circumstances that explain the taxpayer's non-compliant behavior cease to exist) the taxpayer fails to comply with the tax obligation within a reasonable period of time.
When will the IRS excuse someone from filing a tax return and not assess the related penalties? Only in rare cases when there is "reasonable cause." In one case, a man claimed he had reasonable cause for not filing because he was ill. Find out what happened in Tax Court by clicking here.
September 15th deadline for partnerships, estates & trusts
The IRS announced a change in the extended due date for certain business returns to help individuals better meet their filing obligations. The partnerships, estates and trusts listed below have a new extended deadline of September 15th instead of October 15th as in previous years. The change, which reduces the extension period from six months to five months, eases the burden on taxpayers. The new rule applies to business entities that file the following returns:
- Form 1065 – US Return of Partnership Income
- Form 1041 – US Income Tax Return for Estates and Trusts
- Form 8804 – Annual Return for Partnership Withholding Tax (Section 1446)
The new regulation does not change the process for requesting an extension of time to file, nor does it affect extensions of time to file other types of business returns, such as those used by S Corporations. The new rule affects tax returns due on or after January 1, 2009.
Kevin E. Reynolds, CPA is a Partner in our Tax Services Department and is based in our Boca Raton office. With over 15 years of experience in public accounting, his goal is to help clients minimize their total tax liability and make financially sound, tax-savvy business decisions. Focusing on the health care, real estate and retirement plan industries, Kevin is able to provide expertise and guidance in addressing such complex issues as cost segregation, like-kind exchanges, mergers and acquisitions, and corporate structuring. As the firm's leader of the retirement plan advisory practice, he provides assistance in planning and structuring retirement plans, ensuring that the plans are designed for maximum tax advantage.
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