Can you abate or reduce a penalty for not filing a Form 5472?

Yes, it is possible to request penalty abatement for failing to file Form 5472 on time. The IRS allows taxpayers to request an abatement of penalties under certain circumstances.

How to Abate a Penalty for Not Filing Form 5472:

Requesting Penalty Abatement

• If you believe the failure to file was due to reasonable cause and not willful neglect, you can request the IRS to abate (remove) the penalty.
• To request abatement, you must submit a written explanation or respond to the IRS notice stating why the form was not filed on time.

Reasonable Cause for Penalty Abatement

• The IRS may grant penalty relief if the failure to file was due to reasonable cause.
  • Inadvertence or misunderstanding of the filing requirements.
  • Mistakes made by tax preparers or other professionals hired by the business.
  • Serious illness or other circumstances beyond your control.
  • Unavoidable delays (e.g., issues caused by a natural disaster or other significant events).

NOTE: Simply forgetting or being unaware of the filing requirements usually does not qualify as reasonable cause. The IRS generally expects taxpayers to exercise due diligence in complying with tax filing requirements.

How to Request Abatement

• If you receive a penalty notice, you can typically request abatement in your response to the notice.
• You will need to explain the reason for the failure to file and provide supporting documentation (such as evidence of circumstances that prevented timely filing).
• If you are requesting abatement for a late filing, you can file the missing form and send it to the IRS along with your penalty abatement request.

First-Time Penalty Abatement (FTA)

• If this is your first time being penalized for failing to file Form 5472 and you have a good compliance history, you may be eligible for First-Time Penalty Abatement (FTA).
• FTA can be granted if you have a history of filing and paying your taxes on time and meet specific criteria. The IRS may waive penalties for a single instance of non-compliance under this provision.

IRS Considerations

• When reviewing your request, the IRS will consider factors such as your compliance history, the extent of the failure to file, and the reason for the delay.
• If the IRS agrees with your explanation, they may decide to abate or reduce the penalty.
• If your request is denied, you may appeal the decision.

Steps to take if you receive a penalty

1. File the form immediately: If you haven’t filed Form 5472, do so right away to mitigate further penalties.
2. Send a letter to the IRS: Explain why you didn’t file on time and provide any documentation that supports your case for reasonable cause.
3. Request abatement: Clearly ask for the penalty to be removed or reduced, referencing your specific situation.
4. Appeal if necessary: If the IRS denies your abatement request, you have the right to appeal their decision.

Final Thoughts:

While the IRS does provide options for penalty abatement, the key to success is demonstrating reasonable cause for why the form was not filed on time. It’s important to act quickly and professionally, addressing the issue as soon as it arises to avoid additional penalties and interest.