You open your mailbox, and there's a letter, from the I... R... S! Questions start racing in your mind. How did they find me? What does this letter mean? Am I going to be able to afford this? When do I have to pay them? Who can help me fix this?
Over the past three years, I’ve negotiated musicians out of $863 to $1,595 of penalties from the IRS for not paying their taxes by the due date or filing their tax returns late.
You'd be surprised how many musicians can’t pay their taxes when they're due. Each year, seven million taxpayers don’t file their returns on time or don’t pay by the due date. Of those, nearly two million qualify for penalty relief.
Some of the most painful and expensive fees from the IRS are usually failure-to-pay penalties, which can be up to 25 percent of the tax you owed. Of course, the best way to avoid IRS penalties is to not let them happen in the first place. But can you get IRS fees waived if you didn't have the money to pay your band’s taxes? Yep – here's how.
Before you call the IRS to get your penalties fees waived:
- Have your social security number or band FEIN ready
- Have a copy of the IRS notice
- Have a copy of the tax return you filed late
- Know your filing status (single, head of household, married jointly or separately)
- Know the tax form that was filed (1040, 1065, 1120S)
- Have all returns filed
Now that you’ve gotten your tax documents together, you can call the IRS to ask for a tax penalty waiver. The only way to get tax penalties waived is to request relief. The IRS will not offer them to you, even if you qualify. Below is the phone call script I use to negotiate musicians' tax penalties.
IRS agent: Internal Revenue Service, this is Mr. Agent, ID Number: XXXXXX. How may I help you today?
You: Hi, [band] received a letter in the mail charging a penalty because we weren’t able to pay all of the taxes up front, and I'd like to have it waived.
IRS agent: [After asking you some identity verification questions] I see the penalty – let me see here. Unfortunately, we're not able to waive that fee, because you’re supposed to make estimated tax payments throughout the year. I can see no payments were made, therefore we can't waive the fee, blah, blah, blah...
You: "Well, it's my [musician's] first time owing this much tax, and I'd like to get it waived. Can I take advantage of the first-time penalty abatement?" (Yes, use those exact words.)
IRS agent: "Let me take a look at the account. Is it okay if I put you on a brief hold?"
[after listening to three long minutes of the same IRS hold music]
IRS agent: "It looks like I can waive the penalty this one time. The band will receive a letter in the mail within seven to 10 business days showing that the failure-to-pay penalty has been removed. However, this can't happen again, because this is the only time we will offer this courtesy. You need to make quarterly estimated tax payments in the future. May I help you with anything else today?"
You: “That’s all, thank you for your help.”
What you don't want to say to an IRS agent:
- "If you can't waive it, will you at least reduce the fee?" You don't want a reduction, you want forgiveness. Don't settle yet.
- "Is there anything else I can do, like set up a payment plan for the penalty?" Imagine you're the IRS agent speaking. It would make your job easier to say, "Yes, you can set up your payment agreement on IRS.gov.
- "Well, I read an article online that said you could." I'd roll my eyes at you, too.
- "Okay." Don't give up if the IRS agent's first response is "no."
Key takeaways and tips:
- The initial response may be "no," but don't fear. Ask for the first-time penalty abatement.
- This will work even if you already paid the fees – they'll send you a refund check.
- Mistakes happen, but don't let it happen again, because I guarantee they won't waive the fees again.
- The IRS will only allow the waiver for one year. If you weren’t able to pay for multiple years, you're stuck with the rest of the fees.
- Pay at least the same amount of tax you owed last year, and you can avoid the penalty in the future.
The IRS understands that things happen, and they'll waive a first-time fee if you ask. After the first time, it's near impossible, but can still be done if you have a really good excuse. Remember: the IRS agent is not out to get you, and a well-done phone call can often make a difference. Try calling the IRS at 1-800-829-1040 to get your fees waived. You're welcome.
Alexis M. Kimbrough is a music accountant and business manager at Growth Group. Alexis helps musicians get financially organized and grow their businesses. After working with Alexis, artists are funding their own albums, paying themselves a salary, and getting on top of their finances. Get the guide: five tools musicians use for financial organization.