The IRS is always on the lookout for defaulters and has the right to take action against them as per the law. When a taxpayer is unable to pay what they owe, the obligation doesn’t cease to exist; it rather continues to accumulates interest and even penalties. Though the IRS continually tries to recover outstanding tax debt, it may agree to cut down or waive tax penalties and interest if a taxpayer is able to provide a satisfactory reason for their non-compliance. Read on to learn more about requesting a waiver of IRS tax penalties and interest.
Penalties Eligible for Relief
The penalties eligible for relief are divided into three categories:
- Failure to file tax return
- Failure to pay taxes on time
- Failure to deposit certain taxes as needed
Note: The IRS might consider other types of penalties depending upon the intricacies of the case.
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Types of IRS Tax Penalty Relief
The IRS provides the following three primary types of tax relief:
As the name suggests, a reasonable cause for tax relief should be a reason that is purely objective. The IRS should be convinced that the taxpayer wanted to fulfill their Federal tax obligations, but were unable to due to uncontrollable circumstances.
Some of the reasons that could pass as a “reasonable case” include:
- Fire, natural disaster, casualty, or other such disturbance beyond anyone’s control
- Inability to obtain financial records
- Death, critical disease, incapacitation, or unavoidable absence of the taxpayer or an immediate family member
Note: While lack of funds cannot be cited as a reasonable cause for failure to file or pay on time, it fulfills the reasonable cause criteria for failure-to-pay penalty.
What does the IRS Require?
Here are some of the facts that might be required by the IRS to determine reasonable cause:
- What happened and when?
- What facts and circumstances kept the taxpayer from filing their return or paying their tax on time?
- How did the facts and circumstances prevent the taxpayer from filing their return and/or paying their taxes or perform other routine duties?
- Once the facts and circumstances changed, what actions did the taxpayer take to file and/or pay their taxes?
- In the case of a Corporation, Estate or Trust, did the affected taxpayer or a member of his immediate family have complete authority to execute the return or make the deposit or payment?
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The documents accepted by the IRS in support of a reasonable cause claim include:
- Hospital or court records or a letter from a physician to prove illness or incapacitation, with specific start and end dates
- Documentation of natural disasters or other events that prevented the taxpayer from filing or paying tax
First Time Penalty Abatement
If a taxpayer has missed filing or paying their taxes for the first time, they may qualify for First-time Penalty Abatement (FPA). A taxpayer may qualify for FTA if they:
- Wasn’t required to file a return earlier
- Have no penalties for at least the last 3 tax years
- Have filed all currently required returns or filed an extension of time to file
- Have either paid or arranged to pay the due tax amount
Note: Taxpayers can claim administrative waiver if they received any incorrect verbal advice from the IRS, which led to the non-compliance.
A taxpayer may qualify for a statutory exception in case they received an incorrect or erroneous written advice from the IRS. In such a case, they are required to furnish the following documents to support the claim:
- A written request for advice
- The erroneous written advice they relied upon
- The report, if any, of tax adjustments identifying the penalty or addition to tax, and the item(s) pertaining to the erroneous advice
Besides the above measures for tax relief, the IRS Independent Office of Appeals, also called the IRS Office of Appeals, can also be approached by a taxpayer for getting resolution regarding any tax dispute. The IRS Independent Office of Appeals is an autonomous organization within the IRS that assists taxpayers in resolving their tax disputes through an informal, non-litigation, administrative process.
Regarding Interest Relief
The IRS does not provide any interest relief, as such, because there is no law supporting it. Nevertheless, interest can be reduced if some tax penalties are waived.
The Final Word
The IRS provides tax waivers for certain tax penalties, primarily in cases wherein it was impossible for a taxpayer to file their tax return or pay their taxes. Barring FTA (or other administrative waiver), all types of provisions require a reasonable cause, supported by relevant documents and proof. If you are also seeking a tax abatement or penalty relief, speak with the IRS tax lawyers at the Law Offices of Nick Nemeth. For a free, no-obligation consultation, simply call (972) 426-2553 or fill out our contact form and we will take it from there.