IRS offers late tax filers big break on penalties

April 08, 1993|By Los Angeles Times

Fearing that record numbers of Americans will drop out of the tax system because they can't pay their taxes, the Internal Revenue Service said yesterday that it has drastically reduced penalties for those who ask to file returns late and delay sending payments.

The change, which takes effect immediately, will allow roughly 5 million Americans to avoid 5 percent per month "non-filing" fees, the IRS said. Those fees have traditionally been assessed on anyone who didn't send payment for estimated taxes due when they asked for more time to file returns.

Even though this new rule is going into affect in the last week of the filing season, tax preparers said yesterday that it will have a significant impact.

A taxpayer owing $1,000 in tax could save as much as $240 in penalties, experts said. The penalty reduction also could prompt many taxpayers, who would have borrowed to pay tax on time, to opt instead to delay payment -- in effect making the IRS their lender.

More people than ever are filing their returns late this year, often because they won't get a refund and can't pay taxes due, preparers say. The problem is the result of the sluggish economy, high joblessness -- which put millions of individuals on unemployment insurance -- and withholding changes put into effect last year, the IRS acknowledged.

Those withholding changes, implemented under the Bush administration, caused the government to take out between $172 and $345 less per year from workers' paychecks. That meant Americans had more money to spend during the year, but more will owe tax now.

Additionally, unemployment insurance causes tax problems because the government does not withhold income tax from the benefit payments. The payments are, nonetheless, taxable.

So millions of Americans who found themselves reliant on jobless benefits for several months may now find themselves with substantial tax bills.

"The way the economy has been, we're finding that a lot of our clients owe money and are not in a position to pay," said Marvin Weisbrod, vice president of technical services at Triple-Check Income Tax Service in Burbank, Calif.

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