Paying taxes and filing returns is a responsibility that must be taken care of timeously to avoid any issues with the IRS. Action that can be taken against defaulters includes the charging of interest and penalties. While the government agency is quite determined about collecting taxes from defaulters, it offers several options to help taxpayers avoid any severe action that might potentially be taken against them. One of the avenues is IRS interest and penalty abatement.
What is IRS Tax Abatement?
Tax abatement refers to getting an exemption from the penalty on late tax payment, the penalty for filing taxes late, the penalty for not filing taxes, and the penalty for not paying taxes. While you might get relief from the interest and fines, you still have to pay your taxes, minus any fines. Besides, you must be a compliant candidate that has paid taxes and filed returns on time for the preceding three years to be eligible for IRS penalty abatement.
Although the Internal Revenue Service (IRS) is extremely strict when it comes to paying taxes and filing returns, it understands the possibility of taxpayers encountering unavoidable issues that render them incapable of managing these essential tasks. It is always recommended to inform the IRS about your situation and apply for IRS penalty and interest abatement before being considered as a potential tax evader and attracting several penalties. Here is a guide to help you when requesting IRS penalty abatement.
Penalties That Qualify for IRS Penalty Abatement
To ensure taxpayers adhere to tax rules and regulations, the IRS imposes penalties on anyone that fails to comply. If you want to apply for the removal of certain penalties, they should have been levied against you under one of the following circumstances:
- Penalty for failing to pay your taxes
- Penalty for not filing a tax return
- Penalty for failing to pay the estimated tax in a year
Different IRS Penalty Abatement Options
You can get IRS penalty abatement through the following three main available paths:
1. Avail of First Time Penalty Abatement
Be it a fail-to-pay or fail-to-file penalty, first time penalty abatement can help you deal with both. The IRS understands that even individuals that religiously adhere to the tax regulations can miss out on some payments due to unavoidable reasons and helps them through this provision to help them avoid getting a bad reputation with the government agency.
2. You Have A Reasonable Cause
You can get penalty abatement if you have a reasonable cause for breaking the tax code. If there has been a death in the family, natural disaster, fire, or any other disturbance, or you are unable to obtain your records, it counts as a reasonable cause. Serious illness, death, or inevitable absence of the taxpayer or any other reason that establishes that you tried your best to adhere to the rules but failed to do so is also considered a reasonable clause. You need to provide documents to validate your reason and increase the odds of abatement.
Some of the reasons that taxpayers can provide for failing to file a tax return, pay tax on time, or make a deposit are:
- Fire, natural disaster, casualty, or other disturbances
- Inability to obtain records
- Death, incapacitation, serious illness, or unavoidable absence of the taxpayer or anyone from the taxpayer’s immediate family
Note: A lack of funds is not a reasonable cause for failure to file or pay taxes on time. The IRS may, however, consider lack of funds as a reason for the failure-to-pay IRS penalty interest.
Facts Establishing Reasonable Cause
- What happened, and when did it happen?
- What circumstances and facts prevented the taxpayer from filing their return or paying their tax during the period of time they did not file and/or pay their taxes timely?
- How did the given circumstances affect their ability to file or pay taxes or perform other day-to-day responsibilities?
- After the circumstances changed, what actions did the taxpayers take to file or pay their taxes?
- In the case of a corporation, trust, or estate, did the taxpayer or immediate family member have sole authority to make the deposit or payment or execute the return?
- Court or hospital records or a letter from a doctor/physician to establish illness or incapacitation with specific start and end dates
- Documentation of natural disasters
- Documentation proving the occurrence of other events that prevented the taxpayer’s from paying taxes
1. Don’t Refrain From Strongly Appealing During A Crisis
If you’re stuck in a dire situation and the IRS doesn’t approve of your request right away, you must stand firm and continue to request for abatement. At times, they might not understand the severity of your situation right away and need to be made aware of how dealing with the penalties can potentially create a financial crisis for you. In addition, FTA requests are filtered by a flawed computer tool that often dismisses genuine requests, which makes it important to appeal for IRS debt relief when your request is turned down.
2. You Have A Permissible Exception
Numerous criteria would establish whether your case is an exception. For example, if you received wrong advice about the tax payment or return filing process, you might qualify for abatement as a permissible exception. As there are quite a few different criteria of the Internal Revenue Service, it is highly recommended to hire a tax attorney to help you determine whether your case qualifies as a valid exception.
It’s considered better to seek help from a tax debt attorney for all issues related to IRS tax settlement, including which IRS tax abatement option is the best for you or tax filing, for the best IRS tax problems resolution. This is because IRS tax attorneys are experienced in tax codes and rules and regulations and can analyze your financial situation to suggest the best course of action for you.
Related Blog Post: How to Approach the IRS Office Of Appeals
Interest Abatement Options
The IRS charges interest on all dues daily until you pay the owed amount in full. While the interest is adjusted if you get relief from penalties or pay the due amount, the interest itself cannot be removed by the first-time abatement option or even if you have a reasonable clause. The only eligibility criteria are an unreasonable error or a mistake by an IRS executive in the process of carrying out their duty.
Make Sure To Include The Following In Your Abatement Request
When it comes to evaluating the importance of the contents of IRS tax abatement requests, the most important thing you must clearly mention is the reason for the request. In addition, you need to mention the severity of the issue and how it is being a hindrance in your work and rendering you incapable of filing or paying your taxes on time. Finally, you need to provide adequate evidence to justify your reason, for example, a doctor’s prescription in case of a medical issue.
File Request In Writing
Even though you can apply for IRS penalty abatement using your phone, it is highly recommended to do so in writing, as phone requests are rarely known to work in such cases. Taxpayers planning to request penalty abatement can fill out Form 843, which covers the basic requirements needed to identify an abatement request and attach the necessary evidence that supports your claims. Seek tax help from an IRS tax problem attorney for legal advice.
Related Blog Post: What Happens If You Fail To Pay Your Taxes?
Follow Up Requests Regularly
Penalty abatement requests can get lost within the IRS, which results in applicants not receiving the desired relief from fines. As the requests cannot be tracked using an IRS transcript, you need to call the IRS regularly to ensure your request is still being processed. Besides, if requests get lost, taxpayers are expected to file them again. You must also remember to request the IRS for a “collection hold” on your account after applying for abatement.
Call the Toll-free Number
If a taxpayer thinks that the information on a notice is incorrect or there is an issue they can resolve, an IRS penalty abatement might be applicable. Taxpayers can simply call the toll-free number mentioned in the notice either to resolve the issue or request penalty relief due to reasonable cause if they have the necessary supporting documentation. The IRS may ask taxpayers to mail or fax their written statements.
IRS penalty abatement requests can take quite a lot of time, with just the initial determination taking anywhere up to two or three months. Our team of proficient tax attorneys in Dallas, Texas, at the Law Offices Of Nick Nemeth, can help you apply for IRS abatement of penalties and interest, ensure the application gets through to the IRS, and work to attain the best IRS debt relief plan. For answers to all your questions about abatement of penalties and interest, fill out our Contact Form, email at firstname.lastname@example.org, or give us a call at (972) 426-2991.