Are you facing a tax penalty? One misconception is that nothing can be done about penalties once the IRS puts them in motion. The reality is that taxpayers have options to eliminate, reduce, or even freeze penalties. This is important because penalties can quickly bring about a “snowball” effect, turning a tax debt that you could reasonably pay off into a serious burden that can crush your finances.
Is penalty relief on the table in your situation? Take a look at what you need to know about IRS penalty relief.
What Is Penalty Abatement?
Penalty abatement is when the IRS removes a penalty from the table if you can prove that you did not intentionally neglect your tax duty. The IRS has special rules in place that make it possible for first-time offenders and cooperative taxpayers to have penalties lifted somewhat easily. This is what’s called first-time penalty abatement (FTA). The IRS’s FTA program is open to people and businesses with clean compliance histories.
Do you qualify for IRS penalty abatement? You’ll need documentation, a willingness to work with the IRS, and an ability to understand its requirements.
What Penalties Are Eligible for Relief?
The IRS is pretty consistent in granting penalty relief for “mild” tax offenses. Here’s the list of tax offenses that typically qualify for abatement:
- Failure to file your tax return
- Failure to pay your taxes by the due date
- Failure to deposit certain taxes
Just because the IRS often provides penalty relief somewhat generously in these cases doesn’t mean that you can’t get relief for other causes. However, the IRS typically looks at other tax issues on a case-by-case basis when seeing if penalty relief can apply. Let’s explore the types of penalty relief that could apply to you.
What Are the Types of Penalty Relief?
The categories of relief are pretty broadly defined by the IRS, which means you may be able to prove that you qualify for relief if you look closely enough at your situation. Let’s discuss the types of relief that may be applicable.
Administrative Waivers
An administrative waiver often applies in the case of a first-time penalty, but certain details will help you build a stronger case:
- You weren’t required to file a return for three years prior to the penalty year
- You had not incurred any penalties for three years before the penalty year
- You complied with all requirements for submitting forms or a filing extension
- You have already paid or made arrangements to pay overdue taxes
- You have received incorrect verbal information, instructions, or advice from the IRS
You may be in the clear if you qualify for first-time penalty abatement. However, relief isn’t going to apply automatically unless you prove your status to the IRS. Working with tax professionals to take care of the situation as soon as possible can help you walk away from penalties quickly.
Statutory Exceptions
The IRS will grant statutory exceptions for specific circumstances that account for why you were unable to satisfy a tax obligation. A statutory exception could be in play if you received incorrect advice or instructions from the IRS in writing. The IRS may also grant a statutory exception if the tax amount involved is less than $1,000. Other causes for exception include being newly retired, newly disabled, or in a combat zone.
Does your situation qualify? You won’t know unless you ask the IRS. That means you’ll need to go over the details of your case with a tax professional to discover the best way to proceed. You’ll also need to provide extensive documentation proving why you qualify to have penalties canceled.
Reasonable Cause
Reasonable cause relief is granted by the IRS when taxpayers can prove that they failed to satisfy their tax responsibilities due to circumstances that were beyond their control. You must prove that you exercised care and prudence when doing all within your power to take care of your tax duty. Here’s a look at some of the common occurrences that qualify under reasonable cause:
- Fire, natural disaster, or some type of catastrophic event
- An inability to access your records
- Death, severe illness, or incapacitation
- Some other extraordinary circumstance or hardship
Forgetting to take care of a tax obligation will not qualify as a reasonable cause, and a lack of funds does not automatically qualify you for relief. However, an exception could be made if the lack of funds is related to one of the qualifying circumstances.
Building a case that showcases all of the facts that support your claim is essential when applying for penalty relief based on reasonable cause. In addition to proving that a situation occurred, you’ll need to be able to prove how circumstances specifically prevented you from satisfying your tax duty. You may also be asked to prove that you took action quickly to try to fix the situation. Be prepared to supply hospital bills, insurance records, and other forms of documented proof.
How Do You Know Which Penalty Relief Option Is Best for You?
One of the qualifying causes for penalty relief listed above may be screaming out at you because it fits your situation exactly. Conversely, you may feel discouraged because you don’t see how you could qualify based on the criteria above. It is a mistake to believe that the situation is as cut and dried as it looks in either case. For instance, you may not realize that the IRS provided you with incorrect information until someone who understands tax codes and laws takes a look at your documents. That could take you from someone who doesn’t qualify to someone who does in an instant. There are many more details and stipulations that could impact your eligibility for IRS penalty relief.
Explore Your Options for IRS Penalty Abatement With the Tax Group Center
Do you want to find out if you qualify for penalty relief from the IRS? The Tax Group Center has a team of tax professionals, lawyers, and CPAs waiting to help you discover options for getting penalties wiped from the slate. Let us help you qualify for relief to ensure that you don’t miss your chance to walk away from costly IRS penalties. We help people get cleared for penalty abatement every day!
