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Form 843, one of several complicated tax forms that may require an expert’s assistance in filing, is used to request abatement (or reduction) of IRS tax interest and penalties.  The IRS uses different tests to decide whether to abate penalties versus interest for .  The tests to abate IRS tax interest are stricter than the tests used to abate penalties.

To abate IRS tax interest a Taxpayer must prove the interest was one of the following:

  • Attributed to certain unreasonable errors or unreasonable delays by the IRS [IRC 6404(e)(1)]
  • Due on an account for a Taxpayer located in a declared disaster area [IRS 7508A]
  • IRS tax interest was assessed against a Taxpayer while Taxpayer was located in a combat zone [IRS 7508]
  • Assessed against a Taxpayer while Taxpayer qualified for Military Deferment [Title 50 Appendix section 570 USC]
  • Excessive, barred by statute, erroneously or illegally assessed IRS tax interest [IRC 6404(1)]
  • Assessed on an erroneous refund [IRC 6404(e)(2)]
  • IRS tax interest that is due on an additional liability that was not identified by the IRS in a timely manner [IRS 6404(g)]

A Taxpayer can never argue “reasonable cause” (or extenuating circumstances) to abate IRS tax interest.  A Taxpayer can use “reasonable cause” and several other options to request abatement of penalties.  The abatement of penalties involves a different process than removing IRS tax interest and therefore a tax professional can provide assistance.

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The IRS will consider abating penalties if a Taxpayer can prove one of the following [IRM 20.1.1]:

  • Reliance on erroneous written advice by an IRS officer or employee
  • Reliance on erroneous written advice by a tax advisor
  • Reasonable cause
  • First Time Abatement (FTA)

The two most common requests for penalty abatement are for (3) Reasonable Cause and (4) First Time Abatement (FTA).

Reasonable cause exists when a Taxpayer exercises ordinary business care and prudence but is still unable to file on time, pay on time, or otherwise meet their tax obligations.  Essentially Taxpayers must prove that despite their best efforts they were prevented from meeting their tax obligations because of events outside of their control.  Some examples of reasonable cause include serious illness, death, natural disaster, significant family event, unavoidable absence from the country, and military service.  Penalty abatement requests usually require supporting documentation to be successful.

The First Time Abatement (FTA) is available for Taxpayers who:

  • have not been required to file a return or have no prior penalties assessed on filed returns for the preceding 3 years, and
  • have filed all currently required returns and paid or arranged to pay any tax due

The First Time Abatement (FTA) can only be used for a single tax period.  For example, if a Taxpayer is requesting penalty relief for tax years 2010, 2011, and 2012, the First Time Abatement will only apply to the oldest period (2010).  To abate penalties for 2011 and 2012 the Taxpayer must show reliance on written advice or reasonable cause.

IRS tax interest and penalty reduction is available to taxpayers who qualify for these services.  Be sure to consult with Community Tax to see if your delinquent tax issues can be resolved today.

Interested in how to correctly fill out IRS form 843?