Unfortunately, there is no way to recover penalties and fees paid to the IRS. However, you can avoid those penalties by filing in a timely manner, e-filing a Form 8868
(Extension of Time to File), or adding an explanation as to why your filing late. The IRS will assess penalties on a case-by-case basis given an adequate explanation can be produced.
The best way to avoid IRS penalties is to file on time or, if you won’t be able to file on time, to file for an extension. Extensions of time to file for tax-exempt organizations are usually in 3-month increments. The first, like all extensions, is automatic and does not require an explanation. The second, non-automatic extension is granted based on the reasons the organization lists on the application. So what are appropriate reasons to file for an extension, or even to try and escape hefty penalties?
The IRS looks for something they call “facts and circumstances,” or reasonable explanations as to why the organization is delinquent in their filing. Here is what they are looking for:
- What prevented the organization from requesting an extension of time to file its return, if the organization did not request such an extension
- How the organization was not neglectful or careless, but exercised ordinary business care and prudence
- What steps have been taken to prevent the same situation from occurring in the future
Should an organization be able to give all of these explanations, they stand a much better chance of having their taxes abated. The penalties may also be forgiven if the organization can show that it was delinquent due to events outside of its control or because of advice given by a certified tax professional.