IRS Penalty Abatement
The IRS gets you three ways. If you haven’t paid your taxes, you’ll owe that money. Then, they tack on interest. On top of that, you owe penalties too.
There are, however, some cases in which you can apply for penalty abatement. In other words, the IRS will remove the penalties and interest or even refund penalties and interest that you have already paid.
First-Time Penalty Abatement: If It’s Your First Offense
The IRS keeps a list of abatable infractions which generally include things like honest mistakes but do not include things like willful deception or fraud. The last thing that you want to do is get caught attempting to defraud the IRS. They will not forgive that and they will laugh at you for trying to apply for an abatement.
What Will the IRS Take into Consideration?
The IRS will take a look at two factors. The first factor will be to determine whether or not you are in good standing with the IRS and have otherwise made a solid effort to pay your taxes on time. In the event that you have, you are a good candidate for a first-time penalty abatement.
However, the IRS uses a software called a reasonable cause assistant to process many claims. If you are denied by the software, that doesn’t mean you can’t speak to a representative of the IRS and plead your case. This software has been criticized for producing far more denials than acceptances. An IRS tax defense attorney can help you get the penalties removed if you are in otherwise good standing with the IRS.
First-time penalty abatements only apply to a one-year tax period. If you have not filed taxes for several years or owe taxes from previous years, the IRS will not grant an abatement based on a first-time penalty exemption. Additionally, because you don’t have a clean record with the IRS, it will be more difficult to convince them that you should qualify.
What Types of Penalties Will It Erase?
Types of penalties erased by a first-time penalty abatement include:
- Failure to file penalties
- Failure to pay penalties
In the case of failure to file penalties, a 5% penalty is placed on your monthly balance. This can add up quickly. Failure to pay penalties tack on a .5% penalty on your monthly balance.
Lastly, no more than $10,000 in penalties and interest can be forgiven.
How Do I Qualify for Penalty Abatement?
To qualify for a first-time penalty abatement, you must show the IRS that:
- You’ve had no tax penalties over the past three years. If you have any outstanding tax penalties in excess of $100 over the past three years, you will not qualify for a first-time penalty abatement.
- You have no outstanding paperwork. At the point of requesting a first-time penalty abatement, you must have filed all required returns and extensions.
- You have made arrangements to pay your back taxes. You will need to prove to the IRS that you are making every effort to get up to date on your taxes or be up-to-date on your repayment plan that you are making in installments.
Reasonable Cause for Penalty Abatement
In order to have tax penalties waived (which do not waive the actual tax debt — only the penalties) you must show the IRS that there is a good reason why you should be allowed to skate free on tax penalties. These may include:
- Postage errors,
- Death or illness in the family,
- Hardship caused by your own illness,
- Major medical expenses,
- IRS employee error,
- You were in rehab or prison,
- You received bad advice from a professional,
- Destruction of records due to natural disaster, or
- Economic hardship related to your employment.
Generally speaking, if there is a very good reason you could not pay your taxes and it is unrelated to your own financial mismanagement, you may be a candidate for a penalty abatement.
How Do I Request IRS Penalty Abatement?
There are three reasons why the IRS penalizes taxpayers. Those are when they 1) fail to file, 2) fail to pay, or 3) fail to deposit.
Depending on the circumstances surrounding the assessment of the penalty and your reasons for not paying on time, you can apply for an abatement.
In some cases, you can apply for an abatement before the IRS has assigned the penalty. This is known as a penalty non-assertion request. In other cases, you can file for an abatement after the penalty has been assessed or even after you have you paid.
In each of these cases, it helps to have a lawyer who is well versed in the IRS penalty abatement process to file your paperwork for you and plead your case. Burke Smith Law has helped a number of taxpayers file for abatements and have both penalties and interest removed from their accounts.
Talk to an Omaha NE IRS Tax Lawyer
Dealing with the IRS by yourself can be confusing and frustrating. More often than not, taxpayers who owe penalties may qualify for forgiveness that they know nothing about. They end up paying thousands of dollars in penalties before consulting an IRS tax attorney.
Attorney Burke Smith helps those who owe back taxes reduce their burden to Uncle Sam and ensure their own long-term financial stability. We can determine if you qualify for a first-time or hardship abatement and reduce or eliminate tax penalties or interest owed to the federal government. For a consultation, contact Midwest Tax Relief today.