990-EZ Late Filing Penalty: How to Request Abatement

Form 990-EZ is an annual information return required by the Internal Revenue Service (IRS) for many smaller tax-exempt organizations. It provides transparency into an organization’s finances and operations. Filing this form after the prescribed due date, the 15th day of the fifth month after the organization’s accounting period ends, can lead to financial penalties. Understanding the penalty structure and the process for requesting a waiver, known as an abatement, is important for organizations that find themselves in a late-filing situation.

The Penalty Structure for Late Filing

For organizations with annual gross receipts of $1,309,500 or less, the IRS imposes a penalty of $25 for each day the return is late. This daily penalty accumulates until the form is filed. The total penalty is capped and will not exceed the lesser of $13,000 or 5% of the organization’s gross receipts for the year.

A penalty applies to organizations with gross receipts that exceed $1,309,500. For these larger entities, the daily penalty increases to $130 per day. The maximum penalty for these organizations is also higher, capped at $65,000 for any single return.

Beyond the penalties levied against the organization itself, the IRS holds the authority to penalize the individuals responsible for the filing. If the IRS issues a written demand for the delinquent return, and the responsible person or persons fail to comply by the specified date, a separate penalty can be assessed. This penalty is $10 per day, with a maximum of $6,500 for any one return.

Information Needed to Request Penalty Abatement

To request a penalty waiver, an organization must demonstrate to the IRS that it had “reasonable cause” for the late filing. Reasonable cause is established if the organization can show it exercised ordinary business care and prudence but was unable to file on time due to factors beyond its control. A part of this is explaining why an extension of time to file was not requested.

Compiling the correct documentation is fundamental to substantiating a reasonable cause claim. For instance, if the delay was due to the death or serious illness of the individual solely responsible for preparing the return, a death certificate or a signed letter from a physician would be necessary proof. If records were destroyed in a fire or natural disaster, a copy of the report from the fire department or an insurance claim can serve as evidence.

Another valid reason can be reliance on erroneous advice from a tax professional. In this scenario, the organization would need to obtain a signed statement from that advisor. The statement should detail the incorrect advice given, explain why it was incorrect, and confirm the dates the advice was provided. The organization must also demonstrate that it supplied the advisor with all necessary and accurate information, making its reliance on the professional’s guidance reasonable.

The Abatement Submission Process

The abatement request is made by preparing a detailed written statement. The letter must include the organization’s full name, its Employer Identification Number (EIN), and the specific tax period for which the penalty was assessed. It is also important to reference the notice number from the IRS penalty letter, typically found in the top right corner of the document.

The letter must provide a clear and concise explanation of the reasonable cause for the filing delay. This narrative should logically present the facts and connect them to the supporting documents being submitted. The statement must be signed by an authorized officer of the organization, such as the president or treasurer, and include a declaration that the statement is being made under penalties of perjury.

The complete request package, including the signed letter and all supporting documentation, should be mailed to the IRS address shown on the penalty notice. After submission, the IRS will send an acknowledgment letter. The review process can take several months, and the organization will receive a final determination letter informing them whether the penalty abatement has been granted or denied.