If you missed a tax deadline and forgot to send in a payment. The good news is the IRS offers something called penalty abatement, which gives qualifying taxpayers a chance to reduce or even eliminate those extra charges. The IRS actually understands that mistakes and emergencies happen and they offer you something called penalty abatement to help reduce the burden. Whether it’s your first mistake and you have had an unexpected life event like a medical emergency or natural disaster, the IRS understands that things happen. In this article, we will break down the types of penalty relief available, who qualifies and how you can apply.
What is Penalty Abatement?
The IRS will agree to forgive tax penalties resulting from late filing of a tax return, tax deposit or other tax payment this is called penalty abatement. These penalties can come from things like filing your taxes late, paying late and not depositing certain taxes on time. The IRS understands that mistakes happen and sometimes people miss deadlines because of emergencies, honest errors and situations out of their control. The taxpayer must convince the IRS that their situation qualifies for penalty abatement in order to benefit from this provision. The qualification according to certain guidelines include:
- Reliance on a tax Professional
- Ignorance of tax law
- Compliance with current tax requirement
- Natural disasters
- Death in the family
- Medical illness
Types of IRS Penalty Abatement
Here are the types of IRS Penalty Abatement.
First-Time Penalty Abatement (FTA)
If you have paid and filed your taxes on time for the past three years but owe back taxes, the IRS will give you a break. First time non compliant taxpayers can request first time penalty abatement. This request applies to some types of penalties in a single tax period and could end up saving taxpayers. However if you don’t have a clean record of paying your taxes on time for at least three consecutive years prior to the back taxes, you will not qualify for this type of IRS penalty abatement.
To qualify, you must meet these basic requirements:
- You haven’t had any major IRS penalties in the last three years.
- All of your required tax returns are filed.
- You have either paid your taxes or set up a payment plan.
So, if it’s your first time dealing with penalties, it’s definitely worth asking for an FTA. It could save you a good amount of money and help you get back on track.
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Reasonable Cause Penalty Relief
Sometimes life just doesn’t go as planned like an illness, a natural disaster, a death in the family and even something like losing important documents you needed in time. If something truly out of your control caused you to miss a tax deadline and payment, the IRS might be willing to work with you through what’s called reasonable cause Penalty Relief.
Statutory Exception Penalty Relief
Whereas reasonable cause helps taxpayers who were the victims, statutory exceptions are made in special cases. If the IRS provided the wrong information, mixed up the dates and gave a taxpayer incorrect advice, their penalty may be forgiven. Here are a few situations where this might apply.
- You relied on written advice from the IRS that turned out to be correct.
- The IRS made a processing error and sent notices to the wrong address.
To qualify, you will usually need to provide documentation like; a copy of the incorrect letter or advice you received from the IRS. Proof that you followed what the IRS told you. Any notices that show their errors and delay.
Correction of IRS Error
The IRS sometimes makes mistakes, when they do so you should not accept it. If you have charged a penalty that you believe is wrong, unfair and the result of processing error, you can request what’s called a correction of IRS error. Here are a few examples of IRS errors that may qualify. You were charged a penalty after already making a timely payment, the IRS lost your documents and failed to process them correctly. To correct these issues you will need to review your IRS notice carefully, gather proof and contact the IRS by phone and letter or clearly explain the mistake.
How to Request Penalty Abatement
Before request for penalty abatement, you will need to be sure you qualify and are able to communicate to the IRS. The experts at world tax and accounting understand what types of situations will qualify a taxpayer for penalty abatement and can help you file the necessary paperwork.
Once you have thoroughly gone through each of your options with a tax professional, you will need to fill out the appropriate form. These are usually Form 843, a Claim for Refund and Request for Abatement. Again, if you’ve paid off most or all your tax debt, you can request a refund of your paid penalties and interest, rather than seeking to remove penalties currently applicable to an ongoing debt.
To learn more about penalty abatement and your options for tax resolution and tax debt relief, don’t hesitate to give us a call or send us a quick message.
Tips for a Successful Request
- Be clear, truthful and concise, explain what happened that caused you to miss the payment, filing and deposit deadline.
- Make sure you avoid these common mistakes in tax representation that could weaken your case.
- Always attach copies of any relevant documents like hospital records, police reports and death certificates.
- Highlight your compliance history.
- Use IRS friendly language.
- Submit your request in the right format.
- Be respectful and professional.
Need Help with Tax Representation?
Don’t navigate tax penalties alone. Whether you’re requesting abatement, dealing with back taxes, or unsure how to file Form 843, our experts at World Tax & Accounting are ready to guide you every step of the way.
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Frequently Asked Questions About IRS Penalty Abatement:
Can a tax professional help with abatement?
Yes! A tax professional such as a CPA, enrolled agent and tax attorney can be helpful when it comes to requesting penalty abatement.
Is there a deadline to request penalty abatement?
Yes, there is a deadline for request penalty abatement, but exact timing depends on what type of penalty you are trying to remove.
How long does it take to get a response from the IRS?
The response time from the IRS depends on how you submit your request and how complex your case.
Can I get interest removed as well?
Yes, sometimes it is possible to remove and reduce interest.
Can you appeal late payment penalties?
If you have a valid reason for paying late, Yes! then you can appeal late payment penalties.