Today I want to cover a popular topic with Taxpayers that owe the IRS. Can Penalties be removed? When a Taxpayer owes the IRS, penalties can add up quickly. If a Taxpayer files late and pays their taxes late, they can find themselves with penalties that equate to 50% of the taxes owed, plus interest on both the tax owed as well as the penalties. In addition, other penalties include Failure to Deposit Timely (Payroll Taxes), Accuracy and Civil Fraud Penalties.
Because of the dollar of these penalties, the Taxpayers that come into our DFW firm often want to know if they, or I, can call the IRS to have their penalties removed or negotiated down. While it’s not that easy (the IRS won’t remove penalties by simply asking), there are situations where penalties can be abated or removed. Here are two ways to remove penalties:
The 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 of the most common penalties:
- Failure to File
- Failure to Pay
- Failure to Deposit
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.
To request the penalty relief, the taxpayer can call 1-800-829-1040 or the new IRS Penalty Assistance line at 1-855-223-4017 X-225. It is possible that the IRS may request that you make the abatement request by letter if a certain amount is exceeded.
Reasonable Cause Relief
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. This is almost always done in writing and , in most cases, you will be required to provide documentation that supports your claim. Reasonable Cause Relief is tougher to be obtained but is available for a wider variety of claims.
To request relief, call the 1-800-829-1040 or the number on your notice. The IRS may request you to mail or fax written statements related to the claim.
Penalty Relief and Appeals
If the IRS rejects your request is it over? No, you can always appeal the disallowance of the Penalty Abatement Request. It is fairly common for the IRS to reject requests for reasonable cause penalty abatement. If this occurs, and you believe the denial was in error, appeal the decision. You can request once you receive your Notice of Disallowance from the IRS either on writing or using the IRS’s online tool.
Do You Need Help?
If you need help with a Tax Penalty Relief or other IRS problem, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at bob@jablonskyandassociates. Learn more about us at https://jablonskyandassociates.com/