Understanding the Types of Penalty Relief Offered by the IRS

Types of penalty relief

A vast majority of taxpayers in the US end up paying hefty IRS penalties, because of lack of knowledge and understanding about penalty relief options offered by the IRS. The IRS uses penalties to discourage people from committing any sort of tax evasion, but also offers abatement of penalties and interest to those who try their best to comply with the law but somehow fail to meet tax obligations due to circumstances beyond their control. If you are dealing with tax penalties, in this blog post, we discuss the penalties that are eligible for relief and the types of relief offered by the IRS.

Penalties Eligible for Relief

While there are around 150 penalties listed under the Internal Revenue Code, there are a few common penalties that make up 74% of all imposed penalties and can qualify for IRS penalty abatement. The common types of penalties that may be eligible for penalty abatement include:

  • Late filing penalties
  • Late payment penalties
  • Late to deposit certain taxes as required by the law

Related Blog: Worried about IRS Problems? The IRS Fresh Start Program May Help

Types of Penalty Relief

If you think you are dealing with a common type of penalty, you can request penalty relief under the following circumstances:

Statutory Exception

According to tax legislation, there can be a statutory exception to a penalty. All statutory exceptions are mentioned under the Internal Revenue Code (IRC) sections. You may also qualify for statutory exception relief if you feel you have received erroneous written advice from the IRS on the basis of which you have been assessed a penalty. To request a statutory exception, you will need:

  • A written request for advice.
  • The erroneous written advice from the IRS that you relied on.
  • The report, if any, of tax adjustments identifying the penalty or addition to tax, and the item(s) relating to the erroneous advice.

Related Blog: Understanding Abatement of Penalties and Interest with the IRS

Reasonable Cause

The term reasonable cause means providing a valid reason why you couldn’t comply with specified tax norms such as death in the family, failure to obtain records, or serious illness. According to the IRS, a reasonable cause is one which establishes that you exercised all ordinary business care and prudence to meet your Federal tax obligation but somehow failed to comply. In your penalty relief request, you must show that your noncompliance was not a deliberate action.

In the event that you get a penalty abatement denial letter from the IRS that doesn’t seem to factor in all facts and circumstances presented by you, you are free to request an appeal of the determination.

Administrative Waiver and First Time Penalty Abatement

The most commonly applied administrative waiver is First-time Penalty Abatement (FTA). An FTA waiver can apply for administrative abatement in circumstances such as failure-to-pay and failure-to-file penalties. You may also qualify for administrative relief if you:

  • Didn’t have any tax penalties for the previous 3 tax years
  • Have fully paid your tax dues
  • Filed all currently required returns

Wrap Up

While it is a good idea to have an good understanding of the types of penalty relief available for you, it is still advisable to contact a tax professional who can help you choose and file a request for the penalty/debt relief in the correct manner. If you are dealing with IRS tax issues and are looking for a tax attorney in Dallas, TX, the tax attorneys at the Law Offices of Nick Nemeth can help. To discuss your case and learn how we can help, call (972) 484-0829 or fill our contact form for a free consultation. We have a team of highly knowledgeable and experienced IRS tax law professionals who can help you overcome any IRS tax problems.