Penalty Abatement May Reduce or Eliminate IRS Debt

If you owe the Internal Revenue Service money, you are probably concerned about payment of the debt, interest, and penalties. Some taxpayers are able to obtain a penalty abatement which may significantly reduce or even eliminate the penalty levied by the IRS. According to the IRS, the purpose of these penalties is to encourage taxpayers to comply with tax law. Therefore, if you can prove that your non-compliance is the result of mitigating circumstances, you may be eligible for a reduction or even elimination of your tax penalty.

To obtain this type of relief, you must submit a penalty abatement request letter to the IRS. The IRS receives millions of these letters every year, and the majority of them are rejected.  Most penalty abatement letters are poorly and unconvincingly written and they fail to identify the required causes which are eligible for abatement.  Sarasota CPA and attorney Jo Ann M. Koontz can help you write a compelling letter that may convince the IRS that your non-compliance was the result of circumstances and that you truly deserve relief from penalties.

Help to Determine If You Qualify for Penalty Abatement

Not everyone qualifies for penalty abatements. In order to prove your eligibility, you must show that your non-compliance with tax rules was the result of factors over which you had no control, including:

  • Reasonable Cause – A taxpayer must prove that he or she took reasonable care to understand the law and comply with tax payment but unknowingly failed to comply. Examples of reasonable cause may include death, serious illness, unavoidable absence, divorce, substance abuse, natural disaster, or the destruction of records.
  • IRS Error – If your non-compliance was the result of a mistake by the IRS, you should qualify for abatement. This can include mistakes in written or oral advice given by the IRS that impacted your business decisions.
  • Hazards of Litigation – If it appears likely that the demands of the IRS will not be upheld in court, the IRS Office of Appeals may waive the penalties. This occurs most often in audits in which the IRS is levying accuracy-related penalties.
  • Statutory Exceptions – There are some specific provisions for abatement set out by law. For example, if the taxpayer is newly retired or disabled or if the taxes owed are less than $1,000, IRS policy dictates that these taxpayers qualify for abatement.
  • Administrative Waiver – On occasion, the IRS will issue a widespread waiver for tax penalties. For example, in 2012, the IRS issued a penalty waiver for all those who were facing financial hardship. Another administrative waiver is First-Time Abatement (FTA), which offers penalty forgiveness for those who have a history of tax law compliance. According to the 2012 Treasury Inspector General for Tax Administration Support, 1.65 million taxpayers qualified for this abatement in 2010, yet only 8.8% of taxpayers in a sample group received the abatement. This was largely due to the fact that many taxpayers and tax professionals were simply unaware of the abatement policy.

Because the regulations surrounding penalty abatements are quite complex, it is essential that you work with an experienced tax lawyer or CPA. Koontz & Associates, PL can help you determine if you are eligible for penalty abatement.  If you are eligible, then a letter should be prepared for the IRS to convincingly set out your case seeking penalty forgiveness.

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