Posted by Elliot Kravitz, ATP

Penalty Abatement

Penalty Abatement


The Internal Revenue Service can impose a huge number of tax defaulters that do not pay taxes or do not pay on time. These penalties may also include financial penalties imposed on the taxpayer. Some of the main causes of these penalties are failure to file, which is imposed if taxes are not filed until after the due date, and failure to pay, which is imposed when you have an unpaid tax balance after-tax reporting. The IRS can abate these penalties if you present your case carefully.


What is penalty abatement?

At its basic level, penalty abatement is when the IRS removes the penalties imposed on you. While the IRS can impose penalties for various reasons, the most common are non-payment, late filing, and reporting accuracy. Taxpayers who have received a penalty abatement remain liable for all taxes due.

The IRS does not automatically issue tax abatement. You must request one. It is also relatively rare for the IRS to abate penalties, with recent statistics showing that only about 11% of tax penalties are abated. Additionally, the IRS grants abatement based on fairness and does not consider the taxpayer's ability to pay taxes, penalties, or interest owed.

The Internal Revenue Service (IRS) charges interest on the fines it has abated, and the reduction in the fine will also eliminate any interest owed.


Criteria for penalty abatement 

Taxpayers can ask the IRS to exempt their taxes in certain cases. But you must be eligible to apply for the penalty abatement criteria for the IRS to accept your request successfully. Here are some criteria to meet before requesting a reduction in a penalty:

  • The taxpayer does not have to pay taxes to the IRS. Or, they have already reached an agreement with the IRS regarding the pending tax payment plan before requesting a reduction in the fine.

  • The taxpayer has successfully declared all taxes that were owed to him. Or the taxpayer has agreed with the IRS to extend the deadline.

  • The taxpayer track record is clean. This means that the IRS has not imposed any tax penalty on the taxpayer for the past three years.


Reasonable cause for penalty abatement

Most taxpayers who are not asking the IRS for penalty abatement for the first time will ask for a fine reduction for a just cause. The most important factor that the IRS will consider in determining whether you qualify for penalty abatement in the case is whether you acted in good faith. It will also assess whether you have made reasonable efforts to report the correct tax debt but have not complied with it due to unforeseen circumstances beyond your control.


Examples of reasonable cause

Here are some examples of reasonable causes accepted by the IRS:

  • Death in the family

  • Ignorance of tax laws

  • Jail time

  • Medical illness

  • Natural disasters

  • Reasonable confidence in the advice of a tax professional

  • Record destruction

  • Significant financial difficulties

Please note that the IRS will ask you to provide documentation to support your claim in most cases.


Presenting your case effectively.

To successfully obtain a penalty waiver, you must file your case with the IRS accordingly. This includes defining a perfect reason for not paying taxes on time. It's best to include the fact that you tried to pay taxes, but for some reason, it failed. If you are applying for a trust, you must also include the person who had the authority to file tax returns at that time.

If you were in the hospital at the time, please attach copies of your hospital bills and receipts to support your file. You can also attach court documents to strengthen your case further. If you meet all of these conditions and meet the fine reduction criteria mentioned above, there is a great possibility you will be successful.

There are no hard and fast rules to guarantee tax abatement. But to make your case more effective, it is always best to seek professional help to guide the process better.


Here is what to do if denied a penalty abatement

The IRS rejects most requests for penalty abatement, so you shouldn't be surprised if yours are denied. But if you think the IRS has unfairly denied your request, you still have the option of requesting a hearing or an appeal conference. Conferences and appeal hearings are conducted by an IRS appeals officer who can fully assess the facts and circumstances surrounding your claim.

In most cases, you have 30 days from the date the IRS issued the denial letter to file an appeal.


Conclusion

If you think the IRS is forcing you to pay unfair penalties because of circumstances beyond your control, a qualified tax professional can help. An experienced tax professional can help you determine if you are eligible to claim an IRS penalty abatement and represent you throughout the process to ensure your rights are protected.

Penalty abatement is a very technical part of the tax settlement process, as it requires knowledge of several specific tax codes.


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