When you owe back taxes, chances are that you also now owe penalties and accrued interest to the IRS. Just during 2012, the IRS assessed almost $26.9 billion in civil penalties. And we expect that number to only get larger.
Qualified taxpayers can have these penalties reduced or even forgiven by the IRS by a Penalty Abatement. This can save you a significant percentage from your current tax debt.
What You Need To Qualify
In order to get penalties abated there are various IRS forms to file depending on the penalty you are asking to lift. Once you determine which forms are appropriate for your individual situation, you have to make sure to complete them to the exact specification that the IRS is requesting. Once the IRS receives the form, you will be asked for more information. Please note that you must have a reason as to why you qualify to a Penalty Abatement. We discuss this further down on the page.
What is IRS Penalizing For?
According to the IRS, penalties are there to encourage taxpayers not to fall behind on paying their taxes.
There are more than 150 types of penalties today, ranging from one-half percent per month for paying your tax bill late to 75 percent for tax fraud.
It is possible to have multiple types of penalties added to your tax debt. For example, late filing and failure to pay penalties are common together and can add up to 25% on top of your tax bill.
Built into IRS’s agent handbook are guidelines to determine reasonable causes that might warrant abating a penalty for a taxpayer. Those include:
- IRS error
- Mistakes made despite ordinary business care and prudence
- Ignorance of the law
- Death, serious illness or unavoidable absence
- Inability to obtain records
- Inability to obtain tax forms
- Return was filed at the wrong IRS office
- Followed advice from a tax adviser
The above do not grant an automatic Penalty Abatement. Rather it gives you a chance to persuade the IRS to forgive your penalties and interest. That’s where it becomes hard work.
How to Convince the IRS
Not every reason you make to the IRS will work, and even the most reasonable of arguments will demand extensive proof from your side.
Even despite the complexities of tax forms today, it would be next to impossible to prove ignorance of the law for a late-filing penalty, as the deadline clearly is April 15th.
Health causes, death or critical illness can be accepted as good excuses but as always you would have to have documents to prove it, such as medical bills or death certificate.
There are many reasons in between not knowing about due dates to health concerns and that’s where an experienced tax professional can be of great help. Because they know how to frame your request to the IRS for the best chance of success.
Penalty Abatement Tip
This program can be good especially for the people who are first time penalty abatement seekers. However if you have requested an abatement before or have been non-compliant with IRS in the past you might have hard time getting in the program.
Pros & Cons of Penalty Abatement
Pro: When properly requested penalties and interest are reduced from your tax bill.
Con: If you divulge too much financial information while seeking a Penalty Abatement, you may be opening yourself up to becoming easy prey by the IRS because they now know what you have and where to find your assets. So it is always better to protect yourself and have professional representation during this process.
To find out if you are likely to qualify for a Penalty Abatement or one of the other IRS programs, talk to one of our tax professionals today. We are offering a free 15-miute consultation to taxpayers who call right now.