There are different forms of tax abatement that might ease the burden on a taxpayer, but they have one thing in common: the reduction or elimination of taxes. This makes sense because the legal definition of abatement is a reduction, suspension, or cessation of a charge.
It’s important to note some important terminology for the purpose of this article. For example, a “tax return” is the document you file, normally for income taxes, and you might receive a “tax refund” if you’ve overpaid your taxes throughout the year. A “tax exemption” is something you can use as a credit on your tax return (if you qualify for one), such as an exemption due to having dependents.
Both a tax exemption and a tax abatement may reduce your overall tax bill, but they work in slightly different ways. An exemption is typically a more proactive measure, while an abatement can possibly help in a later stage.
Tax penalty abatement comes into play if you are unable to pay your tax bill, and the IRS assesses a penalty on your tax debt. If you qualify for penalty abatement, you can get that penalty removed. You will still owe your tax debt and any interest charged; it is very rare that the IRS will abate your interest owed.
Types of Tax Abatement
There are two common types of tax abatement, and they are very different from each other. If you owe a tax debt that you are unable to pay, tax abatement is not likely the solution to your problem, but we’ll talk about ways you might be able to relieve that burden later in this article.
Property Tax Abatement
Typically, property tax abatement is offered by a local government, such as at a state or municipal level, as an incentive for property owners. By reducing or eliminating property taxes for a period of time, the government encourages development, revitalization, property purchase, and/or owner-occupancy.
To take advantage of real estate tax abatement, you need to find an area where it is offered. You may find these with an online search, or by talking to real estate agents in that area. You will have to find out how to qualify for the abatement, since there is not one set of rules for property tax abatements. You may have to file for the property tax abatement yourself, or you might be able to buy a property that is already benefiting from an existing abatement.
For instance, if a seller’s property has been approved for an abatement, you purchase the property, and there are remaining years left on the abatement, then you will pay a reduced tax rate for the remaining years.
Tax Penalty Abatement
Penalty abatement is a federal relief program designed to help those who’ve made a mistake and have incurred penalties. If the IRS has assessed a penalty against you because of failure to file, failure to pay, or accuracy-related penalties, you may be eligible for penalty abatement.
Tax penalty abatement usually eliminates the penalty assessed against you. It does not change the amount of past-due taxes you owe, and it does not change the amount of interest that you owe.
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Who Qualifies for Tax Abatement?
When it comes to real estate tax abatement, the qualifications are specific to the tax abatement program for the property’s local municipality. To find out if you qualify, you will have to see what the policies are for the abatement program in the area you live, or the area in which you are hoping to buy property.
In general, when a local area offers incentives to homebuyers, the qualifications often include making improvements to the property, and being a full-time resident of the house. Even if you qualify, should you become delinquent on your tax payments, the local government may rescind your abatement rights.
For penalty-related tax abatement, the qualifications are as follows:
- First-Time Penalty Abatement: You qualify if you have no other tax penalties in the last three years, if you have filed all your tax returns, and if you are current on tax payments or participating in a payment plan.
- Reasonable Cause Penalty Abatement: If you have filed all your tax returns, then you qualify. However, to be approved you must show the IRS that you made a good-faith effort to pay your taxes, but extenuating circumstances (such as natural disaster, death, inability to obtain records, or honest errors) prevented you from filing or paying on time.
How Does Penalty Abatement Work?
If you believe you qualify for tax penalty abatement, there are three ways to send your request to the IRS. For penalties less than $500, you can call the IRS, using the phone number on the penalty notice that you received in the mail. They may ask you to file Form 843, or they may give you an immediate decision. If they agree to grant you an abatement, you should receive a written notice of penalty abatement within three weeks. If you have already paid the penalty that the IRS has agreed to waive, use Form 843 to request a refund.
For larger penalties, you can either file Form 843, or you can submit a written request. It is important to attach documentation to support your case for penalty abatement. For example, if you were in the hospital and could not file taxes on time, you should attach medical records with relevant dates to prove your reasonable cause. The IRS should respond to your written request within 60 days.
If your request for abatement is denied, you can appeal the decision using the IRS online tool, or by calling the number on your notice from the IRS. Make sure you have all your documentation on hand for the conversation.
Do I Need a Tax Lawyer?
It is possible to get a tax penalty abatement without a tax lawyer, especially if your situation is very simple. Even in simple situations, though, the experience of a tax lawyer can be invaluable. They will know all the tips and tricks for success. For instance, even if you get your tax penalty abated, you will continue to accrue interest on the debt if you cannot pay your taxes.
If you are unable to pay your tax debt, a penalty abatement will not solve all your problems. A tax lawyer can help you figure out a method to resolve the debt, and stop interest from accruing, by determining if you qualify for one of the following payment programs:
In addition, if you have a large tax debt or do not qualify for first-time abatement, a tax attorney will have experience and can craft a watertight written request arguing your case for penalty abatement.
Taxes are complicated and stressful, and having a tax lawyer on your side will make the whole process much easier for you and improve your chances of success.
S.H. Block Tax Services Can Help
If you’re struggling with tax debt, penalties, and interest, we know what a burden that can be. To find relief, please call us for a free consultation. We can look at your individual situation and help guide you on the best course of action for managing your tax debt.
To take advantage of our free consultation, fill out our online form or give our office a call at (410) 793-1231. We know it’s stressful, but the sooner you make things right with the IRS, the better.
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