The only thing more complicated than filing your taxes is figuring out how to deal with the IRS charging you a tax penalty for an honest mistake. It is very stressful when you’ve filed your taxes in good faith, but the IRS claims you did not properly file or pay. Fortunately, the IRS offers multiple ways to eliminate these fees, depending on your situation.
If this is the first time the IRS has assessed penalties and interest on your taxes, you may qualify for First Time Penalty Abatement (FTA). If you are not eligible for FTA, you may be able to get your fees lowered or eliminated by filing for Reasonable Cause Penalty Abatement. The IRS understands honest mistakes happen, disasters strike, and untimely deaths occur. They offer penalty abatement as a chance for you to explain what happened to prevent you from filing or paying on time.
For the most common types of tax penalties, the fees are usually a small percentage of the taxes due. But while the amount starts out small, the penalty may increase monthly and accrue interest, and your debt may grow from hundreds to thousands of dollars. Typically, the IRS starts charging interest on the day the penalty is due.
Not all penalties are eligible for abatement, but here are some common penalties that may be reduced or eliminated by filing for Reasonable Cause Penalty Abatement:
As you can see, if you receive a penalty notice from the IRS, it is best to address it right away so that the penalty fee does not continue to grow. This does not necessarily mean the penalty must be paid. If you meet the eligibility requirements, you can get the penalty removed by filing for abatement.
The IRS understands that good people may run into situations where they make an error when filing or cannot file on time. Taxes can be complicated. Even if you do your best to accurately report all your tax liabilities, you might make an honest mistake, or you may be in a life situation that prevents you from filing or paying on time.
If you’ve previously been compliant with your taxes and this is the first time you’ve received a penalty, the IRS gives you an easy way to ask for forgiveness with the FTA. For filers with no previous tax penalties, who have filed all the necessary returns, the First Time Penalty Abatement is available to eliminate tax penalties.
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The FTA does not apply to accuracy-related penalties, and you may not meet all the qualifications for the FTA. In this case, you may still get your penalty reduced or eliminated by filing for Reasonable Cause Penalty Abatement.
To show reasonable cause, you must explain to the IRS that you did your best to file accurately and to file and pay on time. You must show that you acted in good faith to comply with the IRS’s rules.
Here are some examples of what “reasonable cause” for penalty abatement might be:
The IRS requests that you send in as much information as you can to show your reasonable cause. This includes the facts and circumstances surrounding your inability to properly file or pay, and what actions you took once those circumstances changed. They also ask for any documentation you can provide, such as hospital or court records, including specific dates.
Like taxes, filing for penalty abatement is complicated and nuanced. To increase the odds of getting your penalty abatement approved, it’s important to hire someone who has experience with successful abatements.
Our tax professionals have experience with successful penalty abatement requests. At S.H. Block Tax Services, we can guide you to the best practices for getting your tax penalties reduced or eliminated. For instance, we recommend paying your tax debt before making the abatement request.
If you are dealing with a tax penalty and you qualify for reasonable cause penalty abatement, we can help you compile the appropriate documents and create your written request for the IRS. Don’t wait another day to get started on resolving your debt with the agency!
Take advantage of our free consultation by calling (410) 872-8376 or completing our online form. We’ll figure out the best strategy for your tax penalty situation.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.
References
Wood, R. W. (2020, October 22). Common sense and reasonable cause for IRS penalties. The Tax Advisor. Retrieved from URL https://www.thetaxadviser.com/newsletters/2020/oct/reasonable-cause-irs-penalties.html
Internal Revenue Service. (2021, November 16). Penalty Relief Due to Reasonable Cause. Retrieved from URL https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-reasonable-cause
Internal Revenue Service. (2021, December 9). Penalty Relief. Retrieved from URL https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief
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