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Do You Need Tax Penalty Relief?

Discover your IRS penalty abatement options.

Tax Penalty Relief

In 2017, the IRS assessed 38,871,235 penalties against individuals and businesses, worth over $26 million in total.

While many taxpayers dread penalties, few know their options when it comes to penalty relief or abatement. The statistics show that in 2016, one in every three penalty dollars assessed was abated. Of the nearly 40 million penalties, the IRS removed or reduced 5,236,054 penalties worth almost $9 million.

If the IRS assesses a tax penalty against you, there is hope; you can negotiate with the IRS for penalty relief.

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Reasonable Cause IRS Penalty Relief

Reasonable cause, as the term implies, refers to situations where the taxpayer was hindered in meeting their tax obligations due to circumstances beyond their control.

To establish reasonable cause, you must provide a valid reason and supporting documentation. Reasonable cause can only be established if you are able to prove that you applied ordinary care and prudence in fulfilling your tax obligations.

Circumstances that may be deemed reasonable cause include:

  • Death of a close family member or personal family disaster
  • Serious illness or injury of the taxpayer or the taxpayer’s family
  • Unavoidable absence of the taxpayer
  • Fire, casualty, natural disaster, or other disturbance
  • Financial hardship (with regards to failure to pay)
  • Inability to obtain records required to file, pay or deposit taxes, especially if this inability was beyond the taxpayer’s control (e.g. fire or burglary)
  • Failure of an employee or an accountant delegated to file, pay or deposit
  • A mistake on the part of the taxpayer, despite taking ordinary care and exercising prudence
  • Erroneous advice from the IRS or from another party, which caused the taxpayer to incur a penalty

When considering these cases, the IRS first evaluates whether the reason provided is compelling. An IRS Penalty Handbook itemizes the various penalties and possible reasons for reducing a penalty.

Beyond the basic rationale, the IRS will screen the application for penalty relief against the following criteria:

  • The taxpayer’s past compliance with filing and paying taxes
  • The length of time that passed before the taxpayer filed, paid or deposited the required taxes
  • Whether the circumstance cited as the cause for not filing, paying or depositing on time were truly out of the taxpayer’s control

The IRS applies a very strict reading of the penalty handbook in considering applications for reasonable cause penalty relief. If you are applying for penalty abatement in this category, it’s important to know and cite the relevant policies in your application.

Other Options for IRS Penalty Relief

As mentioned, reasonable cause is not the only valid argument for IRS tax penalty relief. There are a number of other scenarios under which the IRS may abate penalties. These include:

  • Ignorance of the law
  • Forgetfulness
  • A handful of statutory exceptions covered by the Internal Revenue Code, which include service in combat zones and reasons related to federally declared disasters
  • Administrative waivers, which can provide umbrella abatement for penalties incurred due to specific conditions recognized by the IRS, such as delays by the IRS in publishing guidance or mailing forms

The above circumstances are rare and not viable for many taxpayers. However, if you meet certain criteria, you may be eligible for First Time Abatement, the most widely-available administrative waiver of IRS penalties.

To be eligible for First Time Abatement, you must:

  • Have a clean compliance history over the past three years
  • Have filed all currently required returns or an extension
  • Have paid or arranged to pay any IRS tax due

Most taxpayers have a better chance of securing First Time Abatement than any other form of relief from IRS penalties.

Get IRS Tax Penalty Relief

Come in for a free consultation and our tax experts will give you our best advice, with no obligation. We will assess your individual circumstances and determine which of the available arguments for penalty relief apply to your case.

You’re in good hands when you work with us on your penalty relief application. We have a very high success rate, evidenced by a 98% satisfaction rating in more than 700 reviews—more than any other tax relief agency.

We Can Help You With IRS Penalty Relief

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FAQs on IRS Penalty Abatement

Will I be charged a penalty for filing my taxes late?

Yes, in almost every circumstance the IRS will apply a penalty for late filing. There are two circumstances under which you will not face a penalty for unfiled taxes:

  1. The IRS determines that you are owed a refund
  2. You file an extension and pay your tax bill by the extended date

What is the penalty for filing taxes late?

For every month or partial month past the filing deadline, the IRS adds a late penalty equal to 5% of the back taxes due, up to 25% of the total tax bill.

You can also face a late payment penalty if you owe back taxes, even if you haven’t filed. The late payment penalty is 0.5% of the tax amount unpaid, up to a maximum of 25%.

What is the penalty for not paying my taxes on time?

The penalty for failing to pay taxes on time is generally 0.5% per month or partial month, from the day after the taxes are due. The failure to pay penalty can accrue to a maximum of 25% of your unpaid taxes.

What is the penalty for late payment of payroll taxes?

The penalty for failure to deposit 491 payroll taxes progressively increases the later the payment is made. The schedule and penalties are as follows:

  • 1-5 days late: 2% of the past due amount
  • 6-15 days late: 5%
  • 16+ days: 10%
  • 10+ days past receipt of notification from IRS: 15%

The penalties are applied to each calendar day past the due date of the payroll tax deposit.

It is important to note that a Failure to Deposit penalty can be applied based on failure to meet any one of three requirements for paying 941s.

  1. The deposit must be paid on time;
  2. The deposit must be made in the correct amount; and
  3. It must be paid by the correct procedure.

Am I eligible for an IRS tax penalty abatement?

You may be eligible for penalty abatement if you can demonstrate a case for reasonable cause or the handful of other claims under which a penalty relief request may be approved.

If you have not had any prior compliance issues, your chances of success are greater. Penalty abatement is more difficult to secure if you have previously incurred penalties. It will be necessary to provide proof that the failure to comply was due to a situation beyond your control.

Our tax relief experts can assess your circumstances in a free initial consultation and make a recommendation.

I paid my penalty, but now I have an abatement. Will I get a refund from the IRS?

It depends on whether you have a balance owing and the date of your Refund Statute Expiration Date (RSED). The RSED is three years from the date you originally filed or two years from the date the tax was paid.

If the IRS has already collected your penalty, there are three possible scenarios:

  1. The deposit must be paid on time;
  2. The deposit must be made in the correct amount; and
  3. It must be paid by the correct procedure.

Can I get interest relief on my IRS tax debt?

Penalties can be negotiated, but interest on back taxes can’t be reduced. Interest is compounded daily and starts to accumulate on unpaid taxes one day after the due date, until all back taxes are fully paid. The interest rate varies and is adjusted quarterly.

I applied for reasonable cause penalty abatement but was denied. Why, and what can I do?

The IRS uses an automated tool called the Reasonable Cause Assistant to screen penalty abatement applications. This tool makes an initial determination based on rules but doesn’t take into consideration the taxpayer's circumstances. The RCA screening often results in penalty abatement denial letters that don’t address the specifics of the case. If your reasonable cause application is denied, you can appeal the RCA determination to secure a fair hearing.

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