If you owe the IRS, chances are that you owe both interest and civil tax penalties. The most common penalties are for failing to file tax returns and failing to pay taxes. For instance, if your tax return and payment is due by April 15 and you fail to file a return and pay, the IRS will assess a failure to file penalty and failure to pay penalty. Moreover, interest will begin to accrue on the amount of the underpayment and the newly assessed penalty. With mounting interest, many taxpayers look to tax resolution to get out of tax debt and stop IRS collections. In that case, one initial tax resolution strategy is penalty abatement. Through penalty abatement, the IRS may waive a penalty and interest that accrued on the penalty amount.
A full explanation of IRS penalty relief can be found here. However, that section of the Internal Revenue Manual is rather dry and technical. To learn more about IRS penalty relief and see if you qualify, call tax attorney Jin Kim at (916) 299-9913 for a free consultation.
Requesting the Abatement
When you’ve already qualified to apply for the penalty abatement, the next step is to request it from the IRS. You can do this in two ways, depending on whether or not you’ve already paid the penalty to the IRS. If you’ve already been assessed by the IRS, but you haven’t paid the penalty yet, you can request a penalty abatement by phoning the IRS or writing them a letter. You can ask your tax lawyer to apply for an abatement on your behalf. If you’ve already paid the penalty, you can ask for a refund of the penalty by filing Form 843 “Claim for Refund and Request for Abatement”.
Reasonable Cause
IRS penalty abatement is available to taxpayers who can establish reasonable cause for failing to file timely returns or failing to pay by the deadline. Reasonable cause is determined in reference to the facts and circumstances and exists when the taxpayer used all ordinary care and prudence to meet their tax obligations but nevertheless was unable to do so. With that said, reasonable cause is not established by the mere fact that the taxpayer lacked funds to pay their taxes, but may exist in the underlying cause that prevented the taxpayer from having the necessary funds.
Examples of Reasonable Cause
- Natural disasters. For instance, fire, flood, or tornado.
- Inability to obtain records.
- Death, serious illness, or incapacitation of the taxpayer. For example, if the taxpayer is in a comma or hospitalized with a serious illness.
Administrative Waiver
At times the IRS will create a policy to waive a penalty under certain conditions. For instance, if the IRS is late in printing and mailing certain forms, the IRS may create a policy to waive penalties associated with the late filing of those very same forms. In essence, the administrative waiver is the product of IRS policy due to some lateness associated with IRS action such as delays in mailing forms of publishing guidance.
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