Advice For Requesting IRS Penalty Abatement

If you have a tax debt because of increasing penalty charges, you may qualify for IRS penalty abatement. The IRS charges taxpayers millions of dollars in penalty charges every year. Over time, the IRS’ penalty fees add up to billions of dollars. Taxpayers who have a history of good practice with the IRS may qualify for IRS penalty abatement. The IRS understands that life gets in the way, and sometimes people forget to pay, or can’t pay taxes. For that reason, the IRS created the first-time IRS penalty abatement as a tax debt assistance offer. If you want to know if you qualify for an IRS penalty abatement, speak with a tax resolution specialist. Tax professionals know the formula the IRS uses to determine if a taxpayer qualifies for penalty abatement.  In the meantime, here are tips to help you decide whether you will be eligible for first-time penalty abatement.

Who Qualifies For A First-Time IRS Penalty Abatement

Is can be confusing trying to determine who qualifies for an IRS penalty abatement. However, below are a few facts about who may be eligible. A first-time IRS penalty abatement only applies to select tax returns and penalties:

  1. –    Gift and estate tax returns do not qualify for first-time penalty abatement
  2. –    For payroll and business taxpayers, penalty abatement applies only to penalties resulting from failure to:
  • deposit 
  • pay
  • file
  1. –    Partnership and S corporation late-filing penalties also qualify for a first-time penalty abatement
  2. –    First-time penalty abatement is available for individual taxpayers for the following two penalty charges:
  • Failure to pay
  • Failure to file

Accuracy and Estimated Tax Penalties

The first-time IRS penalty abatement will not apply to accuracy and estimated tax penalties. The IRS bases these types of penalties on circumstances and specific facts for each business, individual, and tax year. However, accuracy penalty responses carry more weight if you are in good standing with the IRS. You stand a better chance with the IRS if you are a taxpayer who:

  • Makes an honest effort to file accurately
  • Has a proven track record of filing returns correctly and on time

Are There Specific Rules For Filing A First-Time Penalty Abatement?

There are specific criteria you must meet to apply for an IRS abatement. A tax professional can help you determine if you qualify. Read on for a few requirements the IRS assesses when deciding whether to approve an IRS abatement request.

You must have a clean three-year penalty history to qualify for an IRS abatement

To qualify, you can’t have any penalties of a significant amount in the past three years. The IRS doesn’t publicly define what they consider a “significant” amount. However, the IRS finds penalty amounts of $1 or more as significant.  The estimated tax penalty is an exception and will not disqualify you from receiving an IRS penalty. Prior penalties that the IRS has abated for a reasonable cause also do not exclude you from an IRS penalty. 

You must have filed all required returns

Taxpayers applying for IRS abatement must be current on all tax filings. Additionally, if you owe taxes, you must be present on your payment arrangement with the IRS.

Do I Need To Request An IRS Abatement Directly From The IRS?

The IRS will often incorrectly apply its rules in determining whether a taxpayer qualifies for an IRS abatement. Part of the reason for mistakes is an unreliable internal tool that IRS employees use to make IRS abatement decisions. You may need to send a written request for IRS abatement to the IRS. If the IRS denies your claim, and its determination indicates they aren’t following the rules, you can appeal. You can remove penalty assessments if you have:

  • Sufficient knowledge of the first-time penalty abatement process
  • By making a phone call to the IRS

How Much In Penalties Will The IRS Abate?

The IRS will only remove penalties incurred in the first year. There is a monetary limit on several penalties the IRS will remove. While the IRS doesn’t publicly state this, their limit appears to be approximately $10,000.

What Can I Do About Tax Penalties More Than A Year Old?

For penalties that extend back further than a year, the IRS will only remove them if you prove “reasonable cause.” With reasonable cause, the IRS requires that you show proof of a serious reason for not paying or filing taxes. The reasonable cause must be out of your control. However, the IRS also requires that you prove you took steps to get past the issue. Mostly, the IRS wants to see what you attempted to pay your taxes but that it wasn’t possible.

What Are Examples of Reasonable Cause for IRS Abatement?

Several situations can constitute reasonable cause. Below are a few of the most common reasons accepted by the IRS:

  • Tax documents destroyed by flood, fire, or other natural disasters
  • Inability to calculate the amount you owe due to lack of tax records
  • Spent time in rehab or prison
  • Held hostage in another country
  • The death of a close family member, such as a spouse or a child
  • The occurrence of a civil disturbance, such as a mail strike, that prevents you from making a payment
  • Receiving wrong information from a tax professional or IRS representative

In some cases, you can also receive an IRS abatement for an error. However, the IRS requires that you demonstrate that you made a mistake in good faith. The IRS may also accept other reasons as reasonable cause. You must show that the issue created a situation where you could no pay taxes on time. 

Tax Penalties Have You Overwhelmed? Contact Platinum Tax Defenders

The team at Platinum Tax Defenders has years of experience helping clients remove tax penalties. If your penalties are increasing your tax debt, call us today. We offer free consultations for new clients.

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