IRS Penalty Abatement
The IRS imposes various penalties on taxpayers who fail to comply with the tax laws, such as failing to file a tax return or paying taxes owed. Penalties can be between .05% and 25% of the unpaid tax debt a month. This can add up and make your tax debt situation even more difficult. However, in certain circumstances, taxpayers may be eligible for penalty abatement. This article will discuss the various types of IRS penalties, the criteria for penalty abatement, and the steps taxpayers can take to request penalty relief.
Types of Penalty Relief
The IRS offers 3 types of penalty relief depending on the penalty: First Time Penalty Abate and Administrative Waiver, Reasonable Cause, and Statutory Exception.
1. First Time Penalty Abate and Administrative Waiver
Failure to File
Failure to Pay
You may be eligible for first time penalty abatement if you failed to pay the tax shown by the due date IRC 6651(a)(2), or if the required tax shown on the return was not paid by the date stated in the notice of demand for payment under IRC 6651(a)(3).
Failure to Deposit
You may be eligible for first time penalty abatement if the tax amount was no deposited in the correct amount, by the tax deadline, or in the manner required by the IRS. IRC 6656.
Qualifying for First Time Abate
You may be eligible for first time penalty abatement if you have been and are tax compliant. That means that you have filed the same tax return type for the past 3 tax years before the tax year you were penalized for. You also should not have received any penalties during the prior 3 tax years, or have any penalties removed for any reason other than the first time abatement.
As an example, you are requesting a First Time Abate for a penalty on your 2022 tax return. You filed your 2021, 2019, and 2018 tax returns without any penalties and didn’t get a First Time Abate for those tax years.
In addition to being tax compliant for past tax years, you also need to be compliant for the existing tax year you are seeking First Time Abate, and have paid all taxes due for years other than the one you owe.
For example, you are requesting a First Time Abate for tax year 2021 and you have filed all required tax returns for that year and don’t owe any other taxes except for year 2021.
2. Reasonable Cause
The eligibility for penalty relief due to reasonable cause varies depending on the type of penalty you owe and the applicable laws under the Internal Revenue Code (IRC). However, some penalties, such as the estimated tax penalty, are not eligible for relief due to reasonable cause. For businesses, the reasons for relief apply to the individual who is authorized to file the return, make deposits, or pay the tax. If you can show that you acted with reasonable care and caution but were still unable to file your return or pay your taxes on time, you may be eligible for penalty relief.
Some acceptable explanations for failing to file or pay on time may include:
- Natural disasters, fires, or civil unrest
- Inability to access necessary records
- The death, serious illness, or unavoidable absence of the taxpayer or an immediate family member
- Technical issues that caused a delay in electronic filing or payment
3. Statutory Exception
This type of relief is when a taxpayer has been misled by incorrect advice by the IRS, mailed a return on time, lived in a federal disaster area, or was involved in military operations. When contesting penalties based on statutory exceptions, you must provide documentation to support your claim.
For example, if your reason is incorrect written advice from the IRS, then you must provide a copy of the written advice from the IRS, an explanation of how you relied on that advice, and a copy of the IRS notice identifying the penalty or fees resulting in that incorrect advice.
TaxDebtLawyer.net Can Help
A lawyer who specializes in tax law can provide valuable assistance with IRS penalty abatement. An experienced tax lawyer can determine which relief type you might be eligible for. In addition to determining eligibility, a tax lawyer can file the necessary paperwork for penalty relief with the IRS. They can ensure that all required documentation is complete and accurate and that it is submitted in a timely manner. Finally, a tax lawyer can file an appeal with the IRS should your request for penalty relief get denied. If this happens, an attorney can negotiate with the IRS on your behalf to try to secure the relief you deserve.