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IRS Penalty Abatement: Elimination of Penalties Owed

IRS Penalty Abatement: Elimination of Penalties Owed

If you think you don't have to pay certain federal penalties or interest, you can request an IRS penalty abatement. If you qualify, the IRS will waive some or all of your penalties.

To be eligible, you must prove a reasonable reason for filing your taxes or paying late. In some cases, you may qualify if Uncle Sam made a mistake or delayed your return or if the IRS gave you bad written advice that resulted in fines and interest. You can also get a discount if this is your first offense, and the IRS will abate the penalties.


Reasonable Cause for Penalty Abatement: If you can prove to the IRS that there was a serious reason for not filing on time or paying your taxes, you may be eligible on reasonable grounds. 

  • First-Time Penalty Abatement (FTA): The First Time Penalty Reduction Program (FTA) is for taxpayers with a good track record of compliance. If this is your first time experiencing late payments or other penalties, you may be eligible. This program is not intended for chronic offenders.

  • IRS delays or Errors: If Uncle Sam made a mistake in your assessment, you could claim a rebate in this category. You can also apply if the IRS has caused delays.

  • Oral or Written Advice from the IRS: There are penalties for receiving incorrect advice from the IRS, and you can claim this type of rebate. It is rarely seen, though. 

  • Requesting and filing for Penalty Abatement: You may be eligible to request to reduce penalties for failure-to-pay or failure-to-file penalties. You can also ask for reduced fines for accurate returns, but you must use special procedures, and you may also need to take the IRS to court.

You can submit your request orally, in writing, or by using Form 843. Whichever method you choose, you must explain why you have not paid your taxes.


Requesting and Filing for Penalty Abatement

You can request for penalty abatement by writing a letter to the Internal Revenue Service. The letter should explain in detail why you deserve abatement. 


Requesting for tax relief on Estimated Tax Penalty

The estimated tax penalty cannot be reduced in general. To obtain an exemption from this fine, it is necessary to request the exclusion when filing the tax return. You can request exclusion by completing Form 2210

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IRS Form 2210 

With the individual income tax return, you can complete Form 2210 Underpayment of Estimated Tax by Individuals, Estates, and Trusts) with the individual income tax return. This is the same form you use to calculate your fine, but it also has a section where you can request an exemption from some or all of these penalties.


How many penalties are abated on a yearly basis?

The IRS abates a small portion of the tax penalties each year. For example, in 2019, the agency abated only 9% of total individual penalties and 12% of fines for non-compliance and non-payment.

The IRS does not abate penalties much because most taxpayers do not require abated penalties. In cases where taxpayers request a reduction, the IRS often denies the first request and, although they can appeal, most taxpayers do not.

If you want to abate tax penalties, you must be proactive in contacting the IRS and be prepared to appeal. You should also take steps to increase your chances of abating your fines.


Tips for Abating Penalties 

If you want to abate tax penalties, follow these tips. They are designed to increase your chances of success:

  • Always Take Advantage of First Time Abatement: The IRS will generally eliminate all penalties for a first violation, whether or not you prove reasonable cause. You can request an abatement for the first time over the phone.

  • Appeal Denials: If the IRS denies your request for a reduced fine, always appeal. Most first-round rejections are computer-generated, and you will get more favorable results if you talk to a real person.

  • Ask for a Reasonable Cause in Writing: Do not call the IRS if you want to ask for a reasonable cause. Instead, put your request in writing and be prepared to explain the situation in detail. The IRS accepts phone calls about this, but written requests are usually more successful.

  • Be Detailed With Reasonable Cause Complaints: When explaining why you couldn't pay or file your return, be sure to show how the situation has affected you for the rest of your life. For instance, if you filed late due to illness, explain how the illness prevented you from working or attending events. Then draw a timeline of what happened.

  • Follow-Up: Sometimes, the IRS does not receive requests for abated penalties. Make sure to track your request and submit additional documents as needed.

  • Show Past Compliance: The IRS is more likely to eliminate penalties for people who generally comply with tax regulations. Provide your past compliance and explain why you suffered past penalties.

  • Use Form 843 to Request Reasonable Cause: Although the IRS allows you to write a letter or use Form 843, you must use the form. It has all the details you need to include. On the other hand, if you write a letter, you may accidentally omit critical information.

Also, consider working with a professional. Tax professionals work with the IRS daily and understand what the agency wants to do with reduced fines.


Mistakes to avoid with Penalty Abatement

By trying to abate fines from your account, you may want to avoid paying fines. If you have unpaid fees or penalties, you can request a Collection Due Process (CDP), which allows you to explain your situation to the IRS. If you don't have an outstanding balance, you can't apply for a CDP, so you're losing that potentially valuable corner.

If you are asking for a reasonable cause for the failure to file a penalty, be sure not to claim financial hardship or dependence on a tax professional. Uncle Sam will not accept either of these two excuses as reasonable grounds in this situation, and the agency has won numerous lawsuits against this issue.

The IRS does not accept financial hardship as a reason not to file, as the agency offers several free filing tools and workshops. Additionally, the agency tends to dismiss complaints about misguided advice from tax professionals, as the rules and deadlines for filing are well known to the general public.

Finally, don't forget to keep the statute of limitation in mind. You must request the reduction of the penalty within three years from the date of filing the declaration or within two years from the date of payment of the penalty.


What to Expect when Applying for Penalty Abatement

The procedure differs depending on the type of sanction and how the abatement is requested. If this is your first time requesting a rebate over the phone, you can get immediate approval, but the IRS can take up to three weeks to credit your account.

The Internal Revenue Service takes two to three months to review a written request to abate the fine on reasonable grounds, and if you need to appeal the decision, the process can take six to 12 months.


Final Word

When you work with tax professionals, they put together the necessary tax documents and demonstrate to the IRS that the penalties should be lifted. These services reduce overhead costs and reduce payments.


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