What is Penalty Abatement?
The IRS issues billions of dollars in penalties each year and intends to collect on all of it. That being said, it means to the individual taxpayer that they may be willing to strike a deal for IRS debt forgiveness based on their ability to pay. While the IRS wants to collect on all penalties, they realize that some people can’t or shouldn’t have to pay, and removing those cases from their books allows them to pursue those taxpayers who can and should pay.
Not all taxpayers will qualify for penalty abatement. It will depend on the particular financial circumstances of that individual and the type of penalty being assessed. Every case is unique and the IRS will decide each case by either approving or denying the abatement request based on the information you provide. You must provide the correct information and present your request in a way that supports your explanation and claim for abatement.
It is important to have expert representation on your side for this process. Our mediation experts will prepare your request and submit it to the IRS on your behalf. We will tailor and prepare a customized request that has offered proven results with past clients. The information we will gather from the client will assist us in preparing a comprehensive and complete abatement request, which results in the best chance that your penalty abatement request will get approved.
Tax time is here again, and depending on your tax debt situation, you may either be okay with that or dread every moment of it. It’s that time of year to start gathering up all of your receipts, collecting the W-2s, and being sure that you have everything you need to hand off to your accountant or to file your taxes yourself.
But if you’ve been struggling and dealing with IRS tax debt for years, there’s no doubt that you’ve been racking up IRS penalties. In addition to all of that, you’re probably searching everywhere you can for a bit of forgiveness from the IRS for your tax debts. So whether you own a massive amount of money due to delinquent taxes or you’ve just started paying back your tax debt, you may be wondering if the IRS will forgive penalties.
After all, the more and more that you wait to pay off your back taxes, the more you’re going to watch your penalties and interest skyrocket. And the IRS doesn’t forget its debts. No matter what type of arrangement you make with the Internal Revenue Service for your previous taxes, there is no getting off without paying back some of your overdue unpaid taxes. However, that doesn’t mean there isn’t hope to get some relief in the form of the IRS’s penalty abatement program. The truth is, there is hope for you to save money on your total tax debt.
How so? Because the IRS has created a unique program designed explicitly to help you lower your tax debt by forgiving the IRS penalties that you’ve been accumulating over the years of your delinquent taxes.
The tax specialists at Ideal Tax Solution are here to help you navigate the complicated, red-tape-filled, and overwhelming process of IRS penalty abatement and forgiveness. Our tax pros are here to help you solve your IRS tax problems once and for all.
In this article, we’re going to take a deep dive into everything you need to know about what the penalty abatement program is, how to qualify for it, as well as provide you with a complete list of the do’s and don’t of the? penalty abatement process. This way, you can simplify the process from start to finish and ensure that you have a seamless experience with the outcome you’re searching for.
Everything you need to know about how the IRS forgives penalties!
The fact is that the IRS doesn’t decrease the vast majority of penalties that are asked to be abated. Why is that? It’s typically because people don’t know much about requesting penalty relief during their process of IRS forgiveness. Or they may even consider it something that’s not worth their time or effort, but in this article today, we’re going to dive into all of the reasons why it is worth it.
Why does the IRS charge penalties?
The IRS charges penalties on top of your previous tax debts because they’re designed to encourage you to follow the rules and remain in compliance with the federal tax laws. And trust us when we say that the IRS loves to use penalties a lot to get their point across! Every year, the IRS assesses tens of millions of penalties for taxpayers that total billions of dollars.
However, the IRS does provide you with several options to get your penalties removed or abated if you’re able to qualify for penalty abatement.
What are the most common IRS penalties?
One of the most common penalties that the IRS charges are for taxpayers that don’t file their taxes or don’t pay their taxes. Did you know that there are just about 150 penalties in the Internal Revenue Code? However, only a few of the most common penalties make up 74% of all the penalties charged every year.
Here are some of the most common IRS penalties that are charged every year:
- Failure to pay the penalty – 56% of all penalties, imposed if you don’t pay taxes on time
- Failure to file penalty – 14% of all penalties, imposed if you don’t file a return on time
- Failure to deposit penalty – 4% of all penalties, imposed if a business doesn’t pay employment taxes on time or pays them incorrectly
- A commonly used nuisance penalty is a late-filing penalty for partnerships and S corporations.
- The estimated tax penalty is another penalty that taxpayers often attempt to dispute by providing an exception when filing the tax return.
What about some reasons the IRS will remove penalties?
Don’t worry, we’ve got you covered there too. There are four primary reasons that you can request relief from penalty abatement.
This reason is used when you can prove a specific authoritative exclusion to the penalty. Statutory exceptions are pretty uncommon and, in turn, quickly explained to the IRS at tax filing. Some examples may include things like include disaster relief or combat zone relief.
To qualify for IRS error as your reason for penalty abatement, you need to show documentation that the mistake resulted from reliance on IRS advice. Unfortunately, this penalty relief argument is often unsuccessful, so it isn’t used much.
Why is this one not one that is used often? Because it requires that you have documented erroneous advice from the IRS and that you relied on it to file your taxes. However, the truth is that the IRS routinely puts tax advice in writing. And while the Internal Revenue Manual does, in fact, state that the IRS will allow penalty relief based on erroneous oral advice, it rarely happens.
Reasonable cause is when you can provide a valid reason that you could not comply based on your specific facts and circumstances. This reason for penalty abatement is most commonly used when people attempt to argue that they relied on the bad advice and guidance of their tax professional or tax software. They do this because, typically, this type of argument still falls under reasonable cause for penalty abatement.
However, to be able to present a reasonable cause argument that holds up successfully, you must be able to demonstrate that you did actually exercise ordinary business care but still couldn’t file or pay on time. If you can show that your failure to file or pay was not due to willful neglect, then reasonable cause may be possible to get your penalty abatement approved.
Keep in mind that people do file using a reasonable cause as their reason, but for the most part, they are highly unsuccessful in being approved for this reason. To be successful in your reasonable cause determination for your case, you will have to be sure that the IRS considers all of your facts and circumstances. So, when your penalty abatement denial letter comes, be certain to review it, and if it doesn’t address all of the facts and arguments you presented in your request, request an appeal right away.
Administrative waiver refers to taking advantage of a provision that’s designed to provide relief under certain conditions. This is one of the most widely used reasons when you’re filing for first-time penalty abatement or FTA.
You can use FTA to decrease the failure to deposit, failure to file, and failure to pay penalties for one tax period if you already have a clean compliance history for the past three years.
After all, the FTA is the easiest of all of the available penalty relief options for you.
Request Penalty Relief
No matter what type of reason you use for your penalty abatement application, you want to be sure to keep in mind that other penalties typically require different procedures to request and apply for relief.
If you’re dealing with other penalties, they have most likely been proposed during IRS audits and investigations that you’re currently in the midst of. These investigations can include accuracy or fraud penalties and typically require that you deal with IRS auditors or appeals officers before they deal with your penalties. You can request abatement of return accuracy penalties, but only after they are assessed. These situations can take years to resolve.
Let’s look at some of the do’s and don’t of penalty relief. After all, you must follow best practices to ensure the highest success rate possible in your tax relief journey.
Here are the Dos of IRS Penalty Abatement
Always utilize FTA
Every first-year failure to file and failure to pay the penalty, regardless of whether you qualify for reasonable cause abatement, are allowed to use FTA. However, if you do qualify, you want to call the IRS and request abatement of any failure to file or failure to pay the penalty that qualifies for the FTA program. That’s because the IRS requires that all FTA requests be made by phone, regardless of the penalty amount.
Appeal adverse determinations
The truth about the IRS abatement process is that many of their determinations don’t consider the totality of your circumstances. If any of the evidence on your application doesn’t meet the criteria on its own, you won’t be able to qualify for the abatement, and your other reasons and evidence will automatically be ignored. This is because the IRS has a computer tool they use to assist in penalty abatement determinations that is flawed. Always be sure to request an appeal so that a live person will be the one to hear all of your circumstances and make an informed decision from that.
You must be certain to include these items in your reasonable cause abatement request:
The specific circumstances outside your control caused your noncompliance (illness, incapacitation, lost records, etc.).
Demonstrate how other situations in your life were affected by the reasonable cause. For example, an illness that caused you to be unable to file on time and that kept you from working.
Ensure that you provide specific evidence and a timeline of events for the period of your noncompliance. For instance, a breakdown of your illness and a doctor’s letter shows your inability to perform the regular activity.
Show prior compliance
The IRS Policy Statement 20-1 clearly states that the IRS should use penalties to deter noncompliance. What does this mean? If you can show reasonable cause for why you filed a previous tax filing late, you have the right to highlight your earlier years of compliance with your tax filings and be able to explain the small failure to pay circumstance. A prior positive compliance history weighs heavily in favor of reasonable cause relief.
Always follow up on abatement request
Often the IRS penalty abatement requests find themselves completely lost within the IRS. That’s because they can’t be tracked on an IRS transcript. So how do you know where your application is then? First, you have to pick up the phone and call the IRS. If they don’t have your abatement request, you’ll have to refile it. If you’ve found that you’ve done this multiple times and they keep losing it, then you want to go to the Taxpayer Advocate’s office. They can help ensure that your request is never lost again.
Don't pay your penalty
When you pay your penalty before requesting reasonable cause, you may remove a critical IRS appeals avenue for your case. This avenue is called the Collection Due Process or CDP hearing. The CDP is used when you have an unpaid balance and when the IRS will thoughtfully consider your penalty abatement request. When you can have a CDP hearing, you’re able to increase the chances for abatement. There’s another advantage to having these hearings in that they can take much less time than dealing with the IRS Service Center penalty abatement hearings.
Don't use these two reasonable cause excuses for failure to file
If you base your reasonable cause excuse on either a tax professional or financial hardship, the IRS will automatically reject your failure to file penalty abatement. Why is that? Because the IRS has strong backing for these decisions based on previous court rulings in their favor. When you choose to use these excuses for your failure to file a penalty abatement application, you’ll quickly discover that the IRS has a fast and adverse determination letter with little consideration or options for an appeal.
Successful penalty abatement can take some time, and while first-time penalty abatement can be approved by phone instantly, that may not always be the best road. Whatever route you take, you should always take the time to review your account and make sure that the IRS correctly handles your case.
When you apply for abatement for reasonable cause, it can take a long time to hear back from the IRS. Typically, your penalty abatement request takes up to 2-3 months to receive an initial determination. If you ask for an appeal, it can usually add anywhere from 6-12 months to your process.
Call the specialists at Ideal Tax Solution for all your tax relief needs!
When you call the pros at Ideal Tax Solution, here’s how we help you solve your tax problems once and for all:
We custom tailor your tax services to fit your unique needs. Our team works closely with you to understand the details of your situation and will put together multiple options for you to choose from. Where tax attorneys charge you a fortune for this service, we do it all for free!
We take the time to examine every option to save you as much money as we can every step of the way. Our team works to ensure you receive the best possible settlement every time. It’s time you saved thousands and stopped worrying about tax debt every year. With our tax specialists, you can finally have the guidance you need to live tax debt free!
If you’re struggling with liens and levies or want to learn more about the options available to get out from under the crushing weight of tax debt, we can help. We help you find the right relief program designed to easily navigate the complicated process of tax debt so you can step out of your IRS-related issues faster than you thought possible.
If you’re ready to live the tax debt-free life that you deserve, be sure to call the tax professionals at Ideal Tax Solution today. We have the experience and expertise to walk you through the entire penalty forgiveness application, identify which solution is best for you, and help you solve your tax problems once and for all. Interested in the IRS fresh start program? Call us to find out how we can take the stress and worry away around your tax debt today with a free tax consultation!