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 tax penalty relief.

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Reasonable Cause for Penalty Abatement

What is the reasonable cause for IRS penalty abatement? 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:

When considering these cases, the IRS first evaluates whether the reason provided is compelling. An IRS Penalty Handbook itemizes the various IRS abatement reasons 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 IRS applies a very strict reading of the penalty handbook in considering applications for reasonable cause penalty relief. If you are applying for IRS penalty abatement in this category, it is 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:

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 IRS first time penalty abatement, you must:

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 are 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

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

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%.

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.

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.

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.

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.

Penalties can be negotiated, but interest on back taxes cannot 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.

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 and potentially achieve tax debt abatement.

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