How do I attach an explanation to a return where penalty relief is being requested?
The IRS offers several types of penalty relief such as:
- Reasonable Cause including:
- Fire, casualty, natural disasters, or civil disturbances (examples include COVID-19)
- Inability to obtain records
- Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
- System issues that delayed a timely electronic filing or payment
Penalties eligible for relief may include:
- Failure to file
- Failure to pay on time
- Failure to make required tax deposits
There is no interest relief or abatement available.
In Drake Tax, if the penalty relief is being requested due to a fire, casualty, natural disasters, or other disturbance (such as COVID-19), a Disaster Designation section is available on the MISC screen. Enter the federally declared disaster designation, including the location of the disaster area, in the box below. This will allow the return to display the disaster on the form as needed to indicate that the return is subject to disaster special rules. The disaster designation field is limited to 75 characters, including spaces.
The SCH screen can be used to provide additional details about the reason for the penalty relief or other causes. Choose X for the type of attachment/statement to create an EF Note page to include with the e-filed return. This page can also be printed and attached to a paper-filed return. See the IRS website for details and other requirements.
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