The Internal Revenue Code allows penalties and the associated interest to be abated (removed) by the IRS if the taxpayer can show reasonable cause. Penalty abatement is often the first step in reducing sizeable tax debt and has the potential to lower the amount owed to the IRS by up to 30%. Even if your account is paid in full, the IRS will refund you the penalties and corresponding interest once your penalty abatement is approved.
Some examples of reasonable cause include:
- Major family problems that you can prove, such as a divorce
- Theft or destruction of your records and documents
- A major illness to yourself or immediate family
- Incarceration or a major disruption to your life
- Bad advice from a tax expert
- A natural disaster (hurricane, windstorm, fire, flooding, riot, etc.)
- Lengthy time of unemployment
- Death of a close family member
Three of the most common penalties that are assessed to individual taxpayers by the IRS are Failure to File, Failure to Pay and Failure to Pre-Pay Taxes.
- Failure to File Penalty is calculated based on the period from the due date of your tax return (including any valid extensions) to the date the return is filed by the taxpayer.
- Failure to Pay Penalty is calculated based on the amount of tax owed. The penalty is calculated from the original payment date of April 15. Many taxpayers are not aware that an IRS extension obtained by April 15 is only an extension to file; it does not give the taxpayer additional time to pay the tax liability.
- Failure to Pre-Pay Tax Penalty is assessed when proper estimated tax payments are not made throughout the year. Estimated taxes are quarterly payments mailed to the IRS for taxpayers who are self-employed or any taxpayer who does not have sufficient withholdings taken from their income sources.
Don’t pay the IRS any more than necessary. See if you qualify for a penalty abatement by calling (800) 505-4134 for your FREE Tax Resolution Analysis.