Receiving a penalty from the IRS can be devastating, especially when you don’t have the means to repay it on time. A penalty makes it harder to clear your outstanding taxes since it attracts further penalties and interest until you repay the debt fully.
However, it is possible to apply for and get relief/abatement from a tax penalty if you show that you made an effort to comply but could not do this because of circumstances you could not control. Once you get the notice of penalty, check all the details to ensure they are correct and see what you can resolve. You can receive penalty relief for the following tax issues:
- Failure to pay outstanding taxes on time
- Failure to file tax returns on time
- Failure to deposit specific taxes according to requirements
- Other applicable penalties from the above
After assessing the notice, you (or a tax professional acting on your behalf) can submit a written request seeking penalty abatement. This article discusses the main reasons which IRS accepts for penalty abatement.
If you have reasonable cause for not paying, filing or depositing on time, your application must demonstrate the reasons for the delay/non-payment. Some acceptable reasons include:
- Travelling abroad/out of the country
- Being incarcerated
- Being seriously ill/dealing with the serious illness of a close family member
- Death of an immediate family member
- Destruction or theft leading to loss of documents
Depending on your reason above, you should attach proof in the form of insurance claims, doctors’ reports and hospital records, a death certificate, or pictures of floods/hurricanes leading to the destruction of documents.
The IRS evaluates whether the person acted prudently according to the circumstances but could not because of circumstances beyond their control. They will also check whether the taxpayer could have foreseen the event causing non-compliance and what steps they could have taken to ensure compliance.
Congress may provide statutory exceptions, giving taxpayers relief from tax penalties after major disasters like fires, hurricanes, earthquakes, and floods.
Qualified taxpayers can receive an administrative waiver called First Time Abatement (FTA) for penalties for failing to file, pay, or deposit taxes. Eligible taxpayers are those who show all of the following:
- The taxpayer filed all returns or extensions
- The taxpayer has paid or made arrangements to pay all outstanding taxes
- The taxpayer was not required to file returns or was not assessed for penalties for three tax years before the year attracting the penalty
Correcting IRS Errors
The IRS must abate any penalties assessed because of an error in the written advice given by an IRS officer or employee in their official capacity. Where appropriate, the IRS may also consider abatement if the taxpayer shows they relied on an IRS officer’s oral advice.
The taxpayer must prove that they exercised ordinary prudence and business care considering their situation, the advice rendered and the penalty. They will also consider the taxpayer’s filing and payment history and whether they received the correct information in written format.
Relying on a Tax Advisor
A taxpayer may receive limited penalty abatement for relying on a tax advisor – but this cannot be the only reason given. If there is a failure to file, pay, or deposit taxes, the taxpayer is still held liable even if he/she relied on a tax advisor. Only accuracy-based penalties based on reasonable cause may be abated.
Get Professional Tax Liability Advice from Finishline Tax Solutions
If you have received a notice of tax penalty from the IRS, you may be able to get penalty abatement. There is no guarantee of abatement even when you have reasonable cause, but you can improve your chances by getting Finishline tax professionals to help you apply for an abatement. Even if the abatement is rejected initially, our professionals can help you to file an appeal, during which the IRS agent will assess the totality of your circumstance.
Contact Finishline Tax solutions today to fix your taxes once and for all.