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How To Get Tax Penalties Reduced or Eliminated and Interest Charges Removed

Posted by on October 26, 2011 at 11:20 AM

How To Get Tax Penalties Reduced or Eliminated and Interest Charges Removed

When the Ministry of Finance slams a tax payer with a tax bill, it usually adds penalties and interest. These penalties and interests can sometimes be astronomical. The Ministry of Finance may also impose penalties if they find that a tax code provision has been violated - for example taxes paid late or returns filed late or owing taxes from an audit conducted by the Ministry of Finance Revenue Auditors.

Once the Ministry of Finance has assessed a taxpayer penalty, and the tax payer does not take steps to challenge them, the Ministry will assume that the penalty is accepted. The Ministry of Finance can remove a penalty from a tax bill just as easily as it is added. The key to tax penalty relief is that, the tax payer showing a “Reasonable Cause” for failure to comply with the tax law. What a “Reasonable Cause” is will be dealt with later in this paper.

Tax penalties are not deductible expenses when they are paid.

When a tax payer is late in filing a return or making a tax payment or has violated the tax law, it is likely that the Ministry of Finance may impose a penalty on the tax payer. If the Tax Payer is slammed with a penalty, the penalty may be canceled if a “reasonable cause” is demonstrated for the late filing, late payment or violation of the tax code. The Ministry of Finance is under obligation to explain any penalty imposed on taxpayers. It is certainly possible, to get the Ministry to drop/ forgive penalties or interest charges on tax bills.

Reasons for Penalties.

Penalties are always imposed if the following occur:

* Failure to Timely File Return;

* Failure to File a Return;

* Failure to Timely, Pay Tax;

* Failure to Pay Tax;

* Failure to Pay after Notice and Demand.

* Civil Fraud - Inaccuracies / Intentional disregard of the Tax Code;

The Ministry of Finance may ‘slap’ a tax payer with a 200%penalty if it finds any underpayment of a tax imposed is due to willful neglect (unreasonably careless) or intentional disregard of rules or regulations (but without intent to defraud) or tax payer substantially understated his taxes. This “accuracy-related” penalty is applied when a tax payer cannot prove a deduction on an audit, or did not report all of the income and the Ministry of Finance discovers it.

Interest on Tax Bills

The tax law requires the Ministry of Finance to charge interest on delinquent tax bills, and has given the Ministry very limited discretion in canceling interest charges. The interest rate is such adjusted rate as may be prescribed from time to time by the Central Bank of Liberia.

Penalties can be Forgiven.

Penalties for filing tax returns late without getting a valid extension may be forgiven by the Ministry of Finance if there is a “Reasonable Cause” for filing late. Reasonable cause is any sound reason advanced by a Tax Payer as to the cause for delay in filing a return or paying a tax when due.

Once a tax payer understands why and how the Ministry of Finance assessed a penalty for late filing, a tax payer may request that they be reduced or eliminated. Many tax penalties would have been canceled if tax payers knew how to contest them. By tax payer just informing the Ministry of Finance that he does not like a penalty or that he cannot afford to pay it, would not get him off the hook. The Tax payer should show ’Reasonable Cause’ meaning a good excuse. Any sound reason advanced by a taxpayer as the cause for delay in filing a return or paying tax when due will be carefully analyzed by the Ministry of Finance.

Although the Ministry of Finance would not like to waive late-filing penalties, the Ministry would do so if the Ministry is without doubt convinced that the delay in filing the return was not the taxpayer’s fault.

There are several excuses the Ministry of Finance may accept as “Reasonable Cause” for late filing:

* Death or serious illness of the taxpayer or a member of his immediate family.

* Unavoidable absence of the taxpayer.

* Civil Disturbances.

* Destruction of records in a fire or other casualty.

* Erroneous information given the taxpayer by the Ministry of Finance.

* The Ministry of Finance did not make needed Tax Forms available.

* Other reasons establishing that the taxpayer exercised ordinary business care but could not comply within the time limits.

If a tax payer falls into any of the above categories, penalty abatement is not automatic, but can be accepted based on the Minister’s discretion. A tax payer has a good chance of avoiding a late-filing penalty if he can convince the Minister that the delay was not his fault.

If the Ministry of Finance Commissioner officially rejects tax payers’ request for penalty abatement, all is not yet lost - the tax payer may ask for penalty appeals consideration by writing to the Tax Office explaining reasonable cause. The tax bill in question from the Ministry of Finance should be attached with all documentation supporting the case. There is a formal procedure for contesting or negotiating any unpaid tax bill including a penalty charge. Tax payers should not offer any money when contesting a penalty because they are claiming that they are not liable for it at all.

Interest Charges

To get the Ministry of Finance to remove interest charges from a tax bill is a difficult “nut to crack”, unless it resulted from an error made by the Ministry of Finance itself.

However, if a tax or penalty is abated, interest on that amount should also be canceled. Interest charges can also be removed if the charges result from delays by the Ministry of Finance. For instance, if a tax payer settled an audit agreeing to pay more tax, and the Ministry of Finance did not send the tax bill until a year later, the interest should be canceled because it accrued because the Ministry of Finance did not promptly bill the tax payer. A tax payer cannot get interest abatement if it is accumulated while unsuccessfully challenging a tax bill in an audit appeal or in court. At times the Ministry may conclude that a taxpayer probably cannot pay the tax and interest charges, and therefore may be willing to accept less in an offer in compromise. Tax, Interest and penalties may be reduced or eliminated through bankruptcy.

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