IRS Penalty Abatement

Relief From Penalties

In order to remove the penalties the IRS has assessed against your account an appeal will have to be presented to explain why you did not timely pay the tax. The goal of the penalty abatement presentation is to show that you have acted in good faith with your tax obligations and your original failure to file or pay was due to Reasonable Cause – Not due to willful neglect or intentional disregard of the laws of the United States.

The IRS recognizes seventeen arguments, or possible reasons, for reasonable cause to abate the penalties assessed to your individual tax account. Just because your circumstance is not listed in the criteria below does not mean the IRS will not accept your appeal. It is limited to your ability to explain your circumstances and your ability to document, verify and substantiate the event or events, singular or cumulative, that lead to the late filing or paying of your taxes and the steps that you have taken to address the issue as timely as possible.

It is very important that you include everything that you experienced before, during and after the years for which you have had penalties assessed for taxes that you owed. Substantiation of the details you provide may be necessary to prove certain aspects of your statements. Just because substantiation is not immediately available does not mean there are not ways that you can acquire the information.  Substantiation of your circumstances strengthens the facts you provide and increases the likelihood for the acceptance of the abatement request.  Contact Us to determine the options available to you to Reduce and Resolve your Back Tax Issues.

Death:

• If there was a death in your immediate family (such as spouse, sibling, parent, grandparent, or child) that prevented you from complying with the IRS, you may qualify for penalty abatement. You should be prepared to explain to the IRS who died, the date the death occurred, and exactly how the death prevented you from meeting your obligations to the IRS. You will need the following to support your claim:
  • Copy of death certificate

Serious Illness:

• If either you or an individual in your immediate family had a serious illness which prevented you from complying with the IRS, you may qualify for penalty abatement. A serious illness is usually one which requires some type of continual care, either at a hospital/clinic or personal care at your home. You should have the following documentation to support your claim:
  • Doctor’s statement detailing and documenting your illness
  • Medical bills

Unavoidable Absence:

• An unavoidable absence means that you were not at your residence and could not comply with the IRS, at no fault of your own. Valid examples of this are incarceration, detainment in a foreign country, or deployment to a Combat Zone. You should have the following documentation to support your claim:
  • Proof of incarceration
  • Copy of passport showing dates you left and entered the country
  • Documentary proof that you were detained
  • Proof that you were in a Combat Zone

Bankruptcy:

• If you were in bankruptcy when a failure to pay penalty was assessed, you can request penalty abatement for reasonable cause. Bankruptcy will not be considered as reasonable cause for a failure to file penalty. You should have the following documentation to support your claim:
  • Bankruptcy filing documents

Inability to Pay Due to Extreme Financial Hardship:

• In order to qualify for reasonable cause due to an inability to pay because of extreme financial hardship, you must show the IRS that you would have suffered a substantial financial loss if you had paid the tax by the due date. In most cases, this financial hardship is due to an unexpected event. An inability to pay due to extreme financial hardship will not be considered as reasonable cause for a failure to file penalty. You should have the following documentation to support your claim:
  • Bank statements showing the amount in your accounts when payment was due
  • Statements/bills showing the unexpected cost that was incurred

IRS Error:

• If the IRS made an error in computing or assessing tax on your account or crediting your account with a payment, you can request penalty abatement due to reasonable cause. You will have to show the IRS that you did comply with the law from the beginning and the IRS did not recognize that fact. You should have the following documentation to support your claim:
  • IRS Notice or Letter showing the error
  • IRS Publication showing the error
  • Specific citation of rule or correct application from a law source

Incorrect Written Advice from the IRS:

• If an IRS employee issued your erroneous advice in writing, the IRS will abate the penalty that resulted from you following the advice. You should have the following documentation to support your claim:
  • Copy of your request for advice
  • Copy of IRS response to your request

Incorrect Verbal Advice from the IRS:

• If an IRS employee gives you erroneous advice either over the phone or in person, the IRS may abate the penalty that resulted from you following the advice. This type of reasonable cause is not as effective as having incorrect written advice because it is essentially your word against the IRS. You should have the following documentation to support your claim:
  • Notation of your question to the IRS
  • Documentation regarding the advice provided by the IRS

Postal Service Error:

• If the United States Postal Service lost your mail or made an error concerning the delivery of your tax return or tax payment (delivering your mail to another taxing agency for example), you can request that the associated penalty be removed due to reasonable cause. You should have the following documentation to support your claim:
  • Statement from USPS concerning the error

Tax Professional Error:

• Reliance on a tax professional provides reasonable cause only when it is associated with a technical or complicated tax issue, such as an accuracy related penalty. Failing to file or pay your taxes on time cannot be excused because of advice from a tax professional. You should have the following documentation to support your claim:
  • Copy of incorrect advice
  • Copy of document showing the error made

Lack of Forms:

• If you did not have the correct forms or schedules needed to complete your return, the IRS may abate your penalties due to reasonable cause. However, with the accessibility to forms through the internet and through most public libraries, this is not one of the stronger arguments for reasonable cause. The IRS will also take into account whether or not you filed an extension to receive extra time to get the forms. You should have the following documentation to support your claim:
  • Copy of extension filed

Inability to Obtain Forms:

• An inability to obtain forms indicates that you tried to get the forms needed to complete your tax return, but could not, for reasons outside of your control. Most often, this includes not receiving earning statements from an employer. You should have the following documentation to support your claim:
  • Copy of extension filed
  • Copies of letters written and/or received in effort to obtain documentation

Fire:

• A fire that destroyed your records may be reasonable cause for failing to comply with the IRS. The IRS will consider the timing of the fire in relation to when your return or payment was due and whether or not you had any other copies of your records to fulfill your tax obligation. You should have the following documentation to support your claim:
  • Copy of insurance claim
  • Report from fire department

Theft:

• If your records were stolen and you consequently could not comply with the IRS, you have reasonable cause for failing to comply with the IRS. If you misplaced or lost your documents, however, this is not the same as having your records stolen – misplacement is under your control; having your records stolen is not. You should have the following documentation to support your claim:
  • Copy of insurance claim
  • Copy of police report

Disaster Area:

• If you are located in an Official Disaster Area, the IRS usually issues special instructions for requesting penalty abatement. You should have the following documentation to support your claim:
  • Copy of insurance claim

Unknown Filing Requirement:

• If you did not know that there was a filing or payment requirement (and could not reasonably be expected to know), you may have reasonable cause for failing to comply with the IRS. You should be able to show the IRS that you did make a reasonable effort to comply with any requirements you were aware of. You should have the following documentation to support your claim:
  • Documentation showing when the new requirement went into effect

Tax Law Change:

• A recent tax law change of which you were unaware (and could not reasonably be expected to know) can provide basis for reasonable cause. You should have the following documentation to support your claim:
  • Citation of tax law

Contact Us to determine the options available to you to Reduce and Resolve your Back Tax Issues.