Penalty Abatement is a tool that the taxpayer can use to challenge the IRS assessment of penalties when applicable. In many situations, it is possible to have penalties waived by the IRS.

Penalty abatement cases need to contain “Reasonable Cause” elements, showing that something happened that caused the taxpayer to either not file and or not pay taxes timely. Some examples are illness, family issues, natural disasters, and extreme circumstances like death… it is possible to have penalties waived. Interest associated with penalties can also be removed if a penalty is waived.

Reasonable Cause

The IRS may consider waiving penalties if reasonable cause exists. These would be situations likely out of the taxpayer’s ability to control, such as fire, natural disaster, or other forces that prevent the taxpayer from filing or paying taxes. Serious illness or death of the taxpayer or an immediate family member may also qualify as a reasonable cause to waive penalties. It’s important to note that the IRS typically does not consider lack of funds in itself as reasonable cause to waive penalties on unpaid taxes but could be worth the challenge depending on the taxpayer’s circumstances.

It is best if your Penalty Abatement case includes documentation, providing proof of the reasonable cause. There is a lot of due diligence by the IRS with these cases, for example, they will ask to see hospital records or documentation of the natural disaster. The taxpayer should be prepared to explain the circumstances that prevented them from filing or paying taxes. Again, interest cannot be abated… there is No Free money, the IRS is an Unwilling Lender. The interest that is charged on a penalty could be reduced or removed when the penalty is waived, but the interest will continue to accrue on the delinquent tax balance.

First Time (or One Time) Abatement

People and businesses with otherwise clean compliance histories may be able to receive administrative relief from penalties associated with late filing or late payment. In order to be eligible for a First Time Penalty Abatement, or FTA, you need show no significant tax penalties in the three years prior to this penalty. For instance, if you received a penalty for your 2017 filing, you would need to have a clean tax record for filings between 2014 and 2016.

In addition to a clean compliance history, you will also need to meet further criteria to be considered for FTA. You will need to have filed all required tax returns. You must also have paid or arranged to pay any taxes due. To request a waiver for FTA, you can call the IRS directly through the phone number found on your penalty notice. You may be asked to provide a written request explaining your need.

Statutory Exception

The IRS will likely provide penalty relief if you’ve received incorrect written advice from an IRS agent. In order to receive this waiver, you must show your written request for advice, as well as the written advice you received from the IRS. Any oral advice received may not be subject for a statutory exception. Be sure to retain any communications from the IRS for your records, as they may be necessary to document cause for statutory exception.

Work With an Experienced Enrolled Agent

It can be challenging to stay up-to-date on tax laws and manage issues like penalty waivers while still trying to run your business. If you are facing tax debts, including significant penalties, you may want to consider working with an enrolled agent. Unlike attorneys and CPAs, who are typically state licensed, enrolled agents are federally licensed tax experts, certified by the IRS. An EA can work with you to reduce or remove penalties and negotiate payments and settlements in connection with your tax debt.

Summarizing Penalty and Interest Abatement

If you’ve recently received a penalty from the IRS, you may be wondering if you can challenge the penalty and interest assessment. Fortunately, it is possible to challenge penalties under certain circumstances. The IRS will consider reasonable cause for penalty relief. Interest on any penalties may be removed when the penalty is removed, however, interest on any outstanding tax debt will remain.

Please contact David or Gerald Yarborough by online form or by calling (800) 270-8616 to see what options are best to address your delinquent tax liabilities. We are a local, family-owned company and both of our owners are former IRS employees (that means we have first-hand knowledge about how the IRS and State DOR operates and we use this knowledge to our clients’ advantage). Our company has been helping people just like you for over 40 years. You get Straight Talk when you speak with us, no empty promises that sound too good to be true.