The IRS introduced the First-Time Abatement (FTA) about 18 years ago, but it remains largely unknown and unrequested by qualifying taxpayers. If you feel you should be exempted from some federal penalties and interests, applying for penalty abatement may work for you. Your penalties and interests may be removed, partially or entirely, if you qualify for the reduction. Applying for IRS penalty abatement is a complex process that requires professional help to stop the IRS collection process. The services of experienced tax attorneys such as those at the Law Office of Nick Nemeth are crucial to finding a workable solution for your tax debt situation. Without a reasonable cause for missing your tax deadline, your chances of qualifying for a tax abatement may be minimal. This means that you will have to convince the IRS that there was a legitimate reason for filing late or not meeting other tax obligations.
1. What is the IRS Penalty Handbook?
The IRS penalty handbook provides details and information on the assessment of penalties, the amounts of such penalties and the considerations for penalty and interest abatement. The IRS penalty handbook is the primary source for penalty management.
2. What penalties does the FTA cover?
The FTA covers three types of penalties; failure-to-file, failure-to-pay, and failure-to-deposit. Failure-to-file is imposed if you file your taxes late, or failed to file. Its rate is 5% of your balances due per month. The failure-to-pay penalties are penalties incurred when you fail to pay the full amount owed by the payment deadline. The IRS assesses a penalty of 0.5% per month of the outstanding tax debt. Finally, the failure-to-deposit penalty is imposed on a business that fails to deposit as scheduled, in the required manner or the right amount. The rates for this penalty are: 2% for 1-5 days delay, 5% for 10 days delay and 10% for deposits made 15 days (or more) after the scheduled date.
3. What are “reasonable causes” for penalty abatement?
A reasonable cause is an excuse for not filing or paying your interest or penalties on time. Some examples of reasonable causes include:
- A competent and trustworthy tax professional gave you the wrong advice regarding your interests and penalties
- The death of a family member
- Floods, fire or other casualties destroyed your records
- You were held hostage in a foreign country
- Your attempts to make payments or deposits were disrupted by civil disturbances like a riot or mail strike
- You could not determine the amount of taxes to pay for reasons that were beyond your control
- Some unavoidable absence (such as being in jail or rehab) held you from meeting your tax obligations
4. Can I Still Qualify if My Situation is Not in the list of reasonable causes?
If you can’t find your situation in the list above, the IRS may still look deeper into your incident. IRS agents may ask some questions to determine the authenticity of your claim. Such questions include;
- What circumstances caused you to pay late? How did these circumstances affect your tax compliance?
- How did you handle other financial problems during your situation? Did you ignore other bills as well during the stated period?
- Do you have a history of making late payments? If so, your chances of qualifying for an abatement dramatically reduces
- Do the date of the issue highlighted coincide with filing deadlines or tax due dates?
5. How Much Money Can be Abated?
Once you qualify for tax abatement, the IRS will only remove penalties incurred in the first year. Penalties may have a monetary limit of the amount that can be waived although IRS has not published any limit. The amount appears to be any amount not exceeding $10,000.
It’s is always worth trying to reduce your tax interests and penalties even if you have a weak story. The IRS gives you only one shot to make your case; hence, it is wise to make the most persuasive possible case the first time. At the Law Offices of Nick Nemeth, we understand the difficulties involved in dealing with the IRS, which is why we have a specialized team comprising of experienced financial tax analysts, case managers, EA’s, and CPA to walk you through the intricacies of penalty-related tax laws. If you are interested in learning more about how to use IRS’s own programs to eliminate or minimize your tax debts, do not hesitate to fill our contact form for a free consultation. Alternatively, you can reach us at (972) 627-4580.