Penalty Abatement Overview on Connecticut Back Taxes

When you pay state taxes late, the state immediately imposes a penalty of 10% of the balance on your account, and your tax bill may incur other penalties as well. In some cases, you may qualify for a penalty waiver, but you have to apply. Here is a look at the process. 

How to Apply for Penalty Waivers in Connecticut

The CT DRS do not allow for verbal penalty abatement requests. To apply for a penalty waiver, you should file Form DRS-PW (Request for Waiver of Civil Penalty) with the DRS. This form requires basic information, and you also have to answer the following questions:

• Why couldn't you comply with the tax law? Simply explain why you filed your return late or couldn't make a payment.
• Which type of tax did you incur the penalty on? Income tax, sales and use tax, corporate tax, etc.
• How did you take care of your other financial responsibilities when you were non-compliant with tax filing rules? For example, you should explain how you paid your mortgage or credit card bills.
• How did you attempt to comply with the tax rules once your situation changed? For instance, if you didn't file your returns or pay your tax bill due to unemployment, you should explain how you tried to rectify the matter when you started working again.

You should also include documents that support your case. For example, if you weren't able to submit your tax return because your business records were lost in a flood or a fire, you should attach documents that prove there was a flood or a fire. 

Once the CT DRS has obtained your request, they have a penalty waiver committe review the request. Please note that a penalty imposed in connection with an audit or a penalty not subject to waiver can be challenged by completing Form APL-002, Appellate Division Protest Form. 

When to Apply for Penalty Waivers in CT

The IRS accepts requests for penalty relief any time you have a penalty balance on your account, and you can also request relief if you've paid off your penalties but you have funds on your account eligible for a refund. 

The DRS has much stricter time limits on penalty relief. In CT, you must request penalty relief within a year of the date DRS notified you of the penalty assessment or a year after you filed the tax return that led to the penalty. If you want to get rid of CT penalties, you need to act quickly.

Rules for Penalty Waivers

The DRS will only consider removing penalties if you have filed all required tax returns and you have paid off your back taxes or are in a payment plan. 

If you have several unfiled returns, you should file all of your returns before applying for penalty abatement. The DRS won't consider removing your penalties until you have filed all of your returns, but each filed return starts the clock on the one-year deadline.

Requesting Penalty Waivers on Federal and State Back Taxes

If the IRS waives penalties on your federal back taxes, the CT DRS will assume that reasonable cause exists, and it will usually waive your penalties for the same tax period. In other words, if you convince the IRS to waive your penalties, the DRS will follow suit.

To leverage this fact, you may want to apply for penalty abatement with the IRS first. Then, once the federal agency approves your request, you ask the state to waive your penalties. 

However, you need to be careful with this approach. The IRS can take a lot of time to process requests for penalty abatement, and you have to submit your penalty waiver request to the CT DRS in the one-year time frame explained above. 

To ensure you don't miss the state deadline, you should have your state documents filled out and ready to go. Then, if you don't hear back from the IRS soon enough, you can send the forms to the state before the deadline hits. 

Reasonable Cause for Penalties

The DRS will assume that you have reasonable cause if this is your first penalty. Usually, if you have been assessed a penalty in the last year and you don't have a history of penalties, you can easily get a waiver without explaining the circumstances. If you have filed several years' worth of tax returns, you can often get the first year's penalties removed.

Get Help With Penalty Abatement in CT

The CT DRS's lack of transparency leaves taxpayers in the dark, and often, state collection reps give taxpayers conflicting advice. The absence of clear guidance makes knowledge and experience critical when dealing with the CT DRS. 

Whether you're trying to get penalties waived or find other solutions to your tax problems, you need a tax professional experienced with the CT DRS. Contact a tax pro such as Robert Lyon, who has years of experience working with the CT DRS on behalf of taxpayers. 

Disclaimer:  The content on this website is for educational purposes only. It does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.