Tax penalties can occur when a taxpayer fails to file or pay taxes on time or fails to correctly file or pay their taxes.  These penalties can be a burden to taxpayers and in some circumstances the IRS offers the ability to request a penalty abatement or adjustment.

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The penalty relief the IRS offers falls into three categories: Reasonable Cause, Administrative Waiver & First Time Penalty Abatement, Statutory Exception. 

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If you qualify for one of these three types of penalty relief, it can be extremely helpful in easing or erasing your tax debt. You can apply for these types of relief by submitting the IRS Form 843.

 

 

REASONABLE CAUSE:

 

Based on the circumstances of your situation, the IRS will consider giving you penalty relief if you have a reasonable cause. You must have tried to file and fulfill your tax obligations and were unable to do so for an IRS approved reason. Lack of funds alone is not considered a reasonable cause, but the reason you were unable to have the funds may help you qualify for relief.

 

Typically accepted reasons: 

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• Fire, casualty, natural disaster or other disturbances

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• Inability to obtain records

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• Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family

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• Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so

 

In order to receive Reasonable Cause, the IRS will need you to provide facts surround the circumstances:  

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• What happened and when did it happen?

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• What facts and circumstances prevented you from filing your return or paying your tax? 

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• How did these reasons affect your ability to file and/or pay your taxes or perform your other day-to-day responsibilities?

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• What actions did you take to file and/or pay your taxes after the circumstances changed?

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• In the case of a Corporation, Estate or Trust, did the affected person or a member of that individual’s immediate family have sole authority to execute the return or make the deposit or payment?

 

You may need to provide documentation such as: hospital, physician or court documentation with  start and end dates to establish illness/incapacitation or documentation of natural disasters or other events that prevented tax compliance. If you want to file for relief under Reasonable Cause, you will need to be ready to provide all necessary information and documentation.

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ADMINISTRATIVE WAIVER AND FIRST TIME PENALTY ABATEMENT: 

 

The IRS may provide relief for a penalty you may have otherwise needed to pay under its First Time Penalty Abatement policy.

 

You may qualify for this policy if:

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• You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.

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• You filed all currently required returns or filed an extension of time to file.

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• You have paid, or arranged to pay, any tax due.

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You may also qualify under this category under the other administrative relief blanket if you received incorrect oral advice from the IRS.

 

 

STATUTORY EXEMPTION:

 

If you received incorrect written advice from the IRS, you may qualify for a statutory exception.To prove you qualify for this relief, the following items may be needed:

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• Your written request for advice.

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• The erroneous written advice you relied on that was furnished to you by the IRS.

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• The report, if any, of tax adjustments identifying the penalty or addition to tax, and the item(s) relating to the erroneous advice.

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While Penalty Abatement can be the best solution in resolving IRS Tax Debt, sometimes proving that you qualify for penalty relief can be complicated. The Tax Man can  help you make sure you have all documentation so that your request for abatement can be processed and approved the first time.

 

If you have already requested a Penalty Abatement that has been denied, a tax relief expert can help you understand why this may have happened and help ensure your appeal is approved.