Getting hit with a tax penalty can be a major hassle to overcome financially whether you’re in Massachusetts or any other state. The problem with tax penalties is that the longer you wait on them, the worse they tend to get. So it’s better to act fast.

But what if you were struggling through the last year and didn’t realize you missed the deadline to get your information in? Depending on the circumstances that caused you to forget, you may be able to get tax penalty relief – at least here in Massachusetts.

To see what we mean, we’ll first look at the purpose of imposing a tax penalty in the first place. The reason behind them is probably different than you had imagined. Next, we’ll look at the different rates at which tax penalties can be applied. Finally, we’ll look at what counts as a reasonable cause to get access to tax penalty relief.

What is the Purpose of a Tax Penalty?

A tax penalty is only imposed when a taxpayer in Massachusetts fails to comply with the tax laws of the state. You may think that tax penalties are a way of getting more money out of you, so as to have a larger income at the end of the year. But the truth is that tax penalties are designed not to generate income for the state but rather to give incentive to the taxpayer to properly pay.

The idea is that if you suffer a penalty for not properly filing your taxes, then you will have more motivation to ensure you file them properly. But in order to ensure that the public complies voluntarily and that they maintain confidence in the integrity of the process, it is important that the Department of Revenue administer these penalties in a fair and consistent manner.

This means that penalties are subject to quite a few ways in which they can be reduced or dismissed, depending on the circumstances surrounding them. We’ll get into those in a moment, first let’s look at why you would want to get a tax penalty relief in the first place.

What Does a Tax Penalty Look Like?

Most, though not all, of the following tax penalties, can be found in Chapter 62C of the Massachusetts General Laws:

  • Failure to File Timely Return: Penalty of 1% per month of the unpaid tax up to 25%
  • Failure to Pay a Tax When Due: 1% per month of the unpaid tax up to 25%
  • Failure to Pay Deficiency Assessment: 1% per month of the unpaid tax up to 25%
  • Failure to File Return After Notice or Filing of a Fraudulent Return: Up to double the tax amount due
  • Failure to Report Federal Change: 10% of the additional tax
  • Inconsistent Filing Position: Equal to the amount of tax attributable to the inconsistency
  • Failure to File a Partnership Return: $5 for every day the partnership fails to file
  • Failure to Report Income Paid to Persons: $1 for each report not filed, up to $1,000; a payor of taxable income additionally fined $25-$500 for failure to file
  • Failure to File Wage Reports: Up to $25 per employee, contractor, or other recipients of periodic income; if a conspiracy then a fine of $500 for those involved
  • Fraudulent Estate Tax: 50% of underpayment

What are Reasonable Causes for Tax Penalty Relief?

Tax penalty relief is only granted if there is reasonable cause for your having failed to uphold your tax responsibilities. The reasons that are accepted are:

  1. The delay was due to a death or serious illness: Medical issues often take priority over the rest of life and so it is often understandable why a person forgot to file their taxes or was distracted and made a mistake.
  2. Delay was caused by an unavoidable absence: This could also be a medical issue if you take into account comas, but there could be other reasons for the absence. For example, they could have been out on vacation when the country they were visiting had a lockdown. You can’t be expected to file your taxes if you have no access to them.
  3. Delay was caused by the destruction of property or records by natural disasters or like: If the records you need have been damaged or destroyed, you are going to understandably need a larger window of time in order to properly provide accurate tax information.
  4. Delay arose from an inability to obtain records or information necessary to determine the amount of tax due: Like the example used in #2 if you can’t access the information then how could you provide it?
  5. Delay was due to the Department of Revenue giving erroneous information: This information has to be in writing, but if the information came from them then you had no reason not to trust it.
  6. Delay stems from incorrect advice from a tax professional: If you gave them your information and they gave you incorrect information, that is a failure on their part and not yours.
  7. Delay stems from a lack of clarity in the law: This can be a hard one to argue at times, and you can typically only do it once, but a misinterpretation of the law is one of the reasonable causes.
  8. Delay was caused by the taxpayer relying on another to file, who then failed to do so: Similar to #6, this one does not need to involve a tax professional but the individual must have misappropriated your funds whereas with #7 you are simply acting on wrong information.
    The delay was caused by a failure of the electronic payment or submission system: If there is a technical error with the DOR’s computer systems, then that is on them and not on you.

Can a Tax Attorney Help?

An attorney with a deep knowledge of Massachusetts’ tax laws can help you to better argue why you deserve tax penalty relief. If you need help with getting relief from tax penalties, or any other aspect of tax law, reach out to Benner & Weinkauf, P.C. for a helping hand.