Every income earner in North Carolina is required to file and pay state income taxes. If the taxpayer fails to pay those taxes the state imposes penalties on the taxpayer. There are some special circumstances when a taxpayer should apply for a tax penalty waiver.
Automatic Waivers
There are three circumstances where tax penalties will be waived automatically:
Death of the taxpayer, the taxpayer’s immediate family member, or the taxpayer’s tax preparer
Serious, sudden illness of the taxpayer, the taxpayer’s immediate family member, or the taxpayer’s tax preparer
Natural disaster (such as a tornado or hurricane), an accident (such as a fire that destroyed property and records) or both
In all these cases the penalties are waived for three months from the date of the incident. (Note: For disasters addressed in a memo from the Secretary or the Governor, the period is set in the memo).
Good Compliance Waiver
If a taxpayer has some difficulty getting their taxes paid on time a Tax Penalty Waiver will also be considered if the taxpayer can show a good compliance record. This is a “free penalty pass,” but the taxpayer has to meet these six conditions for the previous three years:
- They must have filed all tax returns.
- They must have paid all taxes (and penalties, if applicable) owed.
- There must have no previous tax penalty waivers.
- The error that resulted in the penalty at issue cannot have been a reason for a previous penalty waiver (no repeat mistakes).
- There can be no tax avoidance or income shifting circumstances that would reduce or eliminate paying tax in North Carolina.
All documents that were requested by the State Revenue Department were supplied by the taxpayer.
How To Request A Tax Penalty Waiver
A taxpayer may request a waiver of penalties in any of the following three ways:
- Submitting Form NC-5500, Request to Waive Penalties (the form can be found on http://www.dornc.com/downloads/NC5500.pdf)
- Writing a letter to the Department of Revenue. All information requested on Form NC-5500 must be included in the letter. Processing a letter will be slower than using Form NC-5500
- Calling the Department of Revenue, in limited circumstances (only when the request is is based on the reason of good compliance record)
When the Department of Revenue grants a waiver the taxpayer will be notified through an amended assessment notice, refund with explanation, or a letter. If the waiver is denied the taxpayer will receive a Letter of Denial.
For more information or assistance with your taxes, contact Brad Ritter, CPA at 919-780-7350.