Understanding the Basics of IRS Penalty Abatement

About IRS Penalty Abatement

Federal tax penalties are one of the most widely used tools deployed by the IRS on taxpayers that fail to file/pay their tax returns. According to the IRS, FY 2021 observed a massive $37.3 billion collected in civil penalties. Federal tax penalties can be problematic for taxpayers as they accumulate interest over time, aggravating the situation with the potential to push taxpayers towards bankruptcy. An IRS tax attorney can help you request an IRS tax penalty waiver or penalty abatement to reclaim your financial health. Continuing on the topic, read on as we discuss the ins and outs of IRS penalty abatement.

Types of federal penalties

Three of the common tax penalties imposed by the IRS are:

  • Failure to File: It is imposed when the taxpayer fails to file tax returns on time. It is charged at 0.5% of the amount owed per month, with a maximum of 25% of the total outstanding amount.
  • Failure to Pay: This tax penalty is imposed when taxpayers fail to pay their taxes on time. It is charged 5% of the amount owed per month, with a maximum of 25% of the total amount due.
  • Failure to Deposit Penalty: This penalty is imposed on enterprises that fail to pay their employment taxes on time or incorrectly.

“Failure to file” comprises 56% of all federal tax penalties imposed under the Internal Revenue Code by the IRS. The best way for taxpayers to deal with penalties is to opt for penalty abatement or an IRS tax penalty waiver. An experienced IRS tax attorney that can help you determine your eligibility and present your case to the IRS with relevant documents.

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Eligibility for IRS penalty abatement

When it comes to filing for an IRS tax penalty waiver or first time penalty abatement waiver, the eligibility can be different depending on the cause that triggered a penalty. These include:

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  • Reasonable Cause: The IRS determines reasonable cause on a “case-by-case” basis after considering all the circumstances and facts of the situation, however, there’s an exception – Estimated Tax Penalty.
  • Failure to File/Pay Penalties: One of the most crucial tax penalties, failure to file/pay requires the taxpayers to present justifiable causes that resulted in missing filing and payments on time. These include disturbances caused due to natural calamities, death/medical deterioration/unavoidable absence of an immediate family member, and technical issues in the system resulting in delays in filing or payment by electronic means.

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An IRS tax penalty abatement request is only accepted if the aforementioned causes are justified by proper proof (documents), however, dealing with such complex legalities can be overwhelming. That’s why it is always preferable to consult an IRS tax firm to help you request IRS penalty abatement.

Final Word

The IRS imposes a penalty and informs the taxpayer by sending an email or letter encompassing information about “how much”, “why”, and “what to do next”. It is important for taxpayers to verify the information in the email/letter and respond accordingly. A federal tax attorney can help you interpret/verify the notice and respond to the IRS, if required. When looking to consult a Dallas-based tax attorney, look no further than the Law Offices of Nick Nemeth. We are a trusted federal tax firm in Dallas, Fort Worth that has experience helping taxpayers with solutions for a range of tax problems, including getting an IRS tax penalty waiver. To discuss your requirements, call (972) 426-2553. Alternatively, you can fill out our contact form.