Penalty Abatement

Are you facing Maryland tax penalties that are causing stress and financial strain? At Azarvand Tax Law, we understand the complexities of tax law and are here to assist individuals and businesses in resolving their tax controversies. Penalty Abatement is a process that provides relief from specific penalties imposed under certain circumstances.

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Penalties Eligible for Abatement

Penalties eligible for abatement in Maryland include those incurred for:
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    Failure to File
    • Late filing penalties are imposed when taxpayers fail to file their tax returns by the due date.
    • These penalties typically accrue at a rate of up to 10% of the tax due.
    • Additional monthly interest charges also apply to the unpaid tax amount.
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    Failure to Pay
    • Begins to accrue when taxpayers fail to pay their IRS taxes by the due date.
    • Interest and penalties continue to accrue until the tax is paid in full.
    • The penalty rate may increase if the tax remains unpaid after receiving notices from the Comptroller.
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    Failure to Deposit
    For business taxpayers with withholding requirements:

    • 1–5 days late: 2% of late payroll tax deposits
    • 5–16 days late: 5%
    • 16+ days: 10%
    • Penalties increase further if you fail to respond to notices from the Comptroller
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    Information Return
    • Late filing of information returns can result in penalties
    • Penalty amounts increase based on how late the information return is filed
    • Intentional disregard of filing requirements results in higher penalties
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    Accuracy-Related
    • 20% of the portion of the underpayment that was understated because of negligence or disregard of rules and regulations
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    Dishonored Checks
    • 2% of the amount of the check or a minimum fee, whichever is greater
    • Additional penalties may apply for repeat offenders
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    Underpayment of Estimated Tax
    • Generally, underpayment of estimated tax by corporations or individuals is penalized based on the interest rate set by the Comptroller of Maryland

It is important to note that penalties are subject to accrue interest. The Maryland Comptroller interest rates are adjusted periodically and apply to all underpayments.

Types of Penalty Relief

Reasonable Cause Penalty Abatement (“RCPA”):

The taxpayer must demonstrate that they exercised ordinary care and prudence and were nevertheless unable to file their return or pay the taxes on time. Examples of valid reasons for failing to file or pay on time may include (but are not limited to):

  • Natural disasters (hurricanes, floods, fires)
  • Civil disturbances
  • Serious illness or death in the immediate family
  • Unavoidable absence of the taxpayer
  • Destruction of tax records due to fire or other casualty
  • Erroneous written or oral advice provided by the Comptroller

Taxpayers requesting Reasonable Cause Penalty Abatement must submit a written explanation to the Comptroller of Maryland.

First Time Penalty Abatement (“FTA”):

Unlike the IRS, the Maryland Comptroller does not have a formal “First Time Abatement” program. However, in practice, the Comptroller may waive penalties for first-time infractions, especially when:
  • The taxpayer has a good history of compliance
  • The taxpayer acted in good faith
  • The taxpayer promptly corrects the issue once discovered
  • The taxpayer establishes reasonable cause

Associated Interest Relief: If penalties are reduced or removed, interest related to those penalties may also be adjusted, which can help alleviate the financial burden of Maryland tax penalties.

At Azarvand Tax Law, we have experience helping clients navigate the complexities of requesting penalty abatement from the Maryland Comptroller. Our team of tax attorneys and CPAs is dedicated to providing personalized solutions to your specific situation. Don’t let Maryland tax penalties overwhelm you. Contact us at Info@AzarvandTaxLaw.com or visit our page here to schedule a free 30-minute consultation and take the first step towards tax compliance and resolving your tax liability.

Licensed Before the IRS, in Maryland, and Washington D.C.