Owe the IRS? Reduce your bill by removing IRS penalties
Tax filing and late payment penalties can more than double tax debt if not dealt with timely. The IRS will not simply remove penalties upon request. However, it is possible to have penalties removed in certain situations and we will discuss the most common alternatives in this installment of our newsletter.
First Time Penalty Abatement –
If the taxpayer qualifies, this is typically the easiest way to remove a penalty. The First Time Penalty Abatement (FTA) is available for 3 penalties –
- Failure to File
- Failure to Pay
- Failure to Deposit (Payroll Deposits)
The IRS Website states that you may qualify for relief from penalties if the following are true –
- You didn’t previously have to file a return, or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
- You filed all currently required returns or filed an extension of time to file.
- You have paid, or arranged to pay, any tax due.
Reasonable Cause –
To qualify for reasonable cause, the taxpayer must be able to show that they attempted comply with the IRS compliance issue, but were unable, due to reasons beyond their control. Some common examples of reasonable cause that the IRS’s website lists include –
- Fire, casualty, natural disaster or other disturbances
- Inability to obtain records
- Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
- Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.
The important factor is to be able to prove that reason for non-compliance was beyond the taxpayer’s control. Understanding the Internal Revenue Manual and alerting the IRS employees why you qualify using their own policies, will substantially increase your chances od success, as will providing the proper documentation that supports your claim.
Appeal of Disallowance of the Penalty Abatement Request
If the IRS does not accept your request for either an FTA, or more commonly, for a reasonable cause penalty abatement, and you believe the denial was in error, you can appeal the decision once you receive your Notice of Disallowance from the IRS.
Audit Appeal
If you are in audit, audit appeals may also provide an opportunity to negotiate the removal of penalties. For example, if a taxpayer is audited for a Hobby Loss and the taxpayer acted in good faith that they believed they had a business and deducted actual expenses paid, if the taxpayer agrees to pay the taxes, it is possible that the IRS appeals officer may waive the penalties as part of the negotiation.
If you need help with Tax Penalty Relief or other IRS problems, please give us a call at (972) 821-1991 or email me at bob@jablonskyandassociates.
