Correcting a Business Tax Return or Payment Error
Everyone makes mistakes. The trick is knowing what to do to fix those mistakes. If you are dealing with the IRS, those mistakes can mean costly fines and penalties. But there are some ways to minimize fines and penalties and keep your relationship with the IRS positive. If you find you have missed a tax payment (an estimated payment or payroll tax deposit, for example) or failed to file a tax return on time, here are some suggestions for ways to make amends to the IRS:
Ask the IRS or Your Tax Preparer
Contact the IRS directly and ask what you should do. Find your local IRS office and make that call. The IRS may have a specific procedure they want you to use to make the correction — for missed payroll tax deposits, for example. Be sure you get the name of the person you are speaking to and the day and time of your call, in case you have to verify the phone call.
Contact your tax preparer, especially if the error relates to a filing which your adviser provided assistance on. Let your adviser help you determine what to do. Sure, it will cost you some money, but having someone help you may mean lower fines or penalties.
How to Correct the Error
Correct the error as soon as you find it. Waiting will only increase fines and penalties. Be certain that you can prove that you made the payment or sent in the form by getting a certification from the post office. Remember, if the IRS says they didn't get it, you must have some way to prove you sent the documents or payments.
Filing an amended tax return is often the best way to correct an error. There is a different way to amend business tax returns, based on business type.
Submit an Explanation
Write up a complete explanation of what happened and what you did to correct it and send this to the IRS. Include your taxpayer ID (EIN) and other identifying information on any correspondence. I'm not saying the IRS won't still require you to pay a penalty, but an honest mistake is looked at in a different light than intentional fraud. For example, here is a statement from the IRS in Publication 15 - Employer's Tax Guide:
The IRS may ... waive penalties if you inadvertently fail to deposit in the first quarter that you were required to deposit any employment tax, or in the first quarter during which your frequency of deposits changed, if you timely filed your employment tax return.
Bottom Line — Take Care of the Issue Promptly
Waiting or trying to ignore mistakes is never a good idea. If you find you made a mistake or you failed to make a tax payment, get busy and fix the problem. The longer you wait, the worse the consequences.