They say “Nothing is sure in life but death and taxes”, however not every tax debt or penalty is set in stone. There are many instances that you may be relieved of debts and penalties in the form of an IRS penalty abatement.
If you don’t believe that you should be required to pay certain federal penalties or interest, you may apply for IRS penalty abatement. If you qualify and are approved, the IRS will remove all of your penalties.
Qualifying for a Penalty Abatement
The IRS isn’t going to waive penalties and significant tax debt for just anyone—there are some strict guidelines in order to qualify. To get approval, you will need to prove to the IRS that there is reasonable cause for filing or paying late. Things like natural disasters, medical expenses, and other emergencies are typically acceptable reasons. In some cases, you may qualify if the IRS made a mistake on your return, or delayed your return. The IRS may give you bad advice that leads to penalties; if you have this advice in writing, you may also use it to apply for an abatement.
First-Time Penalty Abatement
If it’s your first offense with the IRS, they may grant you an FTA (first-time abatement) if your penalty is on the list of abatable infractions. IRS penalty abatements often go unused by taxpayers simply because they are unaware of their existence. According to IRS policy on first-time penalty abatement, if you’ve always paid your taxes on time and are in otherwise good standing with the IRS, then you will likely qualify for FTA program. The IRS will use a decision-support software tool known as the RCA (reasonable cause assistant) to determine whether or not you qualify for an FTA. The software has been criticized for yielding a higher percentage of disapproval ratings than it should and these decisions have often gone uncorrected by IRS personnel. A taxpayer may be able to persuade their assigned IRS agent to reconsider their assessment by using this knowledge if they are initially turned down.
Methods for Requesting Penalty Relief
Taxpayers may request relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties in three different ways. Depending on the circumstances and the situation, here are the methods by which you may apply for penalty relief and abatement:
- Before the IRS assigns a penalty, you may be able to preemptively prevent them from doing so. If the taxpayer files a penalty non-assertion request with a paper return to request that the IRS does not automatically assess a penalty.
- If the IRS has already assigned you a penalty, you may request a penalty abatement retroactively. Simply send a letter (with the help of a tax professional) or call the IRS directly.
- Even if you’ve already paid your penalty, you’re still eligible to file for a penalty abatement. Using Form 843 (claim for a refund and request of abatement) you must file a claim within three years of the return due date or filing date, or within two years of the date, the penalty was paid. Form 843 may also be used for trust fund recovery penalty abatements as well.
While you can apply for an abatement without the help of a tax professional abatement services, it’s not suggested. A qualified tax professional will provide you with the information you need to be successful in your IRS penalty abatement.
Sample Penalty Abatement Letter
If you want an understanding of what the IRS is looking for, you may send a sample penalty abatement letter. The letter should explain why your offense and provide evidence and examples as to why you deserve an IRS first-time penalty abatement. However, if you plan on sending a sample letter to the IRS for informational purposes, you are much better off calling or seeking the advice of a professional tax representative.
A taxpayer representative may call the IRS Practitioner Priority Service (PPS) line to request a penalty abatement on behalf of their client—speeding up and simplifying the process. If the thought of taking on the IRS by yourself is too daunting, you can sign a simple power of attorney document and allow a tax representative to handle all our your dealings with the IRS for you.
IRS Penalty Abatement Considerations
IRS penalty abatements and IRS first-time penalty abatements only apply to one tax year or period. If a request for penalty relief is being considered for two or more tax years or periods (and meets FTA standards), penalty relief will be based on the earliest year or period. Penalty abatement subsequent tax years will be based on other relief provisions, such as reasonable cause criteria, like a major disasters or financial crisis.
Not everyone will qualify for an IRS first-time penalty abatement, here are some so considerations to keep in mind before you apply:
You will not qualify if you haven’t filed (or filed for an extension) on all required returns. If you have an outstanding debt as a result of your returns from the IRS, this will disqualify you as well.
You must have paid, or made arrangements to pay all taxes due with the IRS in order to qualify (an installment agreement will suffice as long as the payments are current).
Clean Penalty History
If you have prior penalties on your records (except an estimated tax penalty) for the past three years, you will be disqualified from a penalty abatement. However, if you have received reasonable cause relief in the past, you’re still eligible for IRS first-time penalty abatement.
It’s important to speak with an IRS representative over the phone or a tax professional before applying for an FTA so that you don’t waste your time applying for something that you don’t qualify for. If you do qualify, a tax professional has the skills, knowledge, and resources to make sure that your FTA application is as successful as possible.
If you feel that the IRS has assigned penalties to your taxes or returns that you deem unfair, don’t hesitate to call Community Tax today. Our team of qualified tax representatives is standing by to assist you with any and all of your tax related needs and questions.