Corporations Penalized for Failing to Pay Taxes on Time

Companies Must Prove Lack Of Tax Payments Is Not Due To Negligence

A Court of Federal Claims recently ruled that a corporation charged with failing to pay payroll taxes in a timely manner did not have a real case for “reasonable cause” for surpassing the deadline. The case shows that corporations need to work closely with an experienced Scottsdale tax attorney to determine if they have actual cause for delaying the payment of taxes, rather than waiting until the case is litigated and being ordered to pay interest and steep penalties.

Business woman calculating company's annual tax

In the recent case, the corporation, All Stacked Up Masonry, was charged with failing to file a return in a timely manner, as well as failing to deposit and pay payroll taxes in a timely manner. The corporation argued that it had “reasonable cause” for not meeting the deadline. The section of tax code related to this rule states “the taxpayer must allege facts that support a finding of reasonable cause as well as a finding that the taxpayer’s actions did not constitute willful neglect.”

Specifically, corporations must show that they used “ordinary business care” but were unable to file the return or pay the taxes by the deadline. Further, they have to show that carelessness, reckless indifference, or intentional failure was NOT the cause of that delay.

Examples of reasonable cause might include the death or serious illness of the taxpayer’s immediate family member – but ONLY if they were also unable to continue usual business operations. If business carried on like usual, that death or illness would not become a reasonable cause.

The IRS showed that All Stacked Up Masonry failed to file returns or pay its payroll taxes on time for nine quarters between 2013 and 2015. The agencies, therefore, assessed penalties and charged interest.

The owner of All Stacked Up Masonry claimed that an injury kept him from managing the business, and he relied on an employee to manage the taxes for the company. The owner also claimed that problems with the software the company used to file its taxes contributed to the delay.

The IRS agreed to waive penalties for three of the nine quarters in question. All Stacked Up Masonry then filed suit against the agency, seeking full relief. The court ruled that the company’s tax obligations were not permitted to be relegated to an employee, and that the software problems did not prevent the company from filing their taxes since there are other routes for filing them. In addition, the owner’s injury did not prevent the business from continuing in its operations. Therefore, the argument the company made for failing to meet the deadline did not constitute “reasonable cause.”

Consult with a Peoria tax attorney prior to this point could have helped this owner avoid the costly process of bringing the case to court.

If you are being assessed penalties because you failed to file your business taxes on time, contact the Scottsdale tax attorneys at Silver Law PLC to talk with our team about your options. We may be able to defend your case in court and find the right legal arguments to overturn the charges. Or we may be able to audit your returns to lower your tax liability, or we may be able to negotiate a settlement for your case. If there’s a reason why you currently aren’t paying your taxes on time, call Silver Law PLC today to consult with one of our tax lawyers about what you can do to avoid penalties.

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