Where you aware that the IRS has over 148 different penalty types they can apply to your account? And on top of that, the IRS will also apply interest and additional penalties on the original penalty. Luckily, the IRS offer a few options on having these penalties reduced or even eliminated. In a generalized manner, the IRS penalties can often be reduced or fully removed in two ways; You may request penalty relief under the IRS’s “fresh start initiative”; and/or you can also request relief from penalties due to “Reasonable Cause”. Due to a lengthy and complexity of details, this article is not an all-inclusive list of penalty abatements and a summarized version only. We are including the most-commonly used to brief you on this benefit the US Government offers.
The mostly used penalties eligible for relief involve the failure to file a tax return, failure to pay taxes on time, failure to deposit certain taxes as required. We would like to state that a failure to file is completely different from a failure to pay. For this reason, we always recommend that if you need to choose between the two, file on time and pay late. By proceeding with this measure your penalties will be lower.
The IRS provides three different types of tax penalty relief. You can request relief due to reasonable cause, first-time penalty abatement or administrative waiver, or a statutory exception.
The Reasonable Cause relief states there must be a reasonable cause to request such abatement. When asking for a waiver due to reasonable cause, you need to establish the facts for the issue you are having that keeps you from taking care of your taxes, and you need to provide suitable documentation towards your request. A few of qualification, although not limited to such are;
- Fire, natural disaster, casualty, or other serious disturbances.
- Extreme Hardship, death, serious illness, incapacitation, or unavoidable absence of you.
- Unable to obtain records or other reasons establishing “ordinary business care and prudence” was applied to meet Federal tax obligations.
The First-Time Penalty Abatement is acceptable for use with the IRS when it’s the very first time you have missed filing or paying, in cases of failure to file, failure to pay, or failure to deposit taxes when due.
The Administrative Waiver would be applied to a penalty applied to your account in the case that you receive incorrect verbal advice from the IRS.
A Statutory Exception may be in order if you received incorrect written advice from the IRS. A mandatory requirement for this exception would be to present the IRS with appropriate documentation to support your case.
As you can see the IRS offers waivers for specific tax penalties, typically in cases where it is not possible for the taxpayer to have filed or paid on time. However, the abatement must be based on a reasonable cause, first-time penalty, or an administrative or statutory exception. An abatement request will most likely be denied due to an oversight or because you don’t/didn’t have enough funds to comply with the tax liability/filing requirement.