Tax Solutions

Penalty Abatement Requests

Owing the IRS is bad enough, owing penalties makes it worse. Penalty abatement offers relief from increased tax debt.

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“If you’re struggling to pay the original amount of your tax bill, the additional penalties can become a real hardship.

Eventually, you’ll have to pay whatever amount is determined that you owe but taking every legal advantage to reduce that amount can be a smart move if you qualify for relief.”

- Alyssa Maloof Whatley

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What is penalty abatement?

Penalties are the IRS’s primary way of punishing taxpayers for failing to pay their taxes on time and in full. Those penalties can add up fast, reaching as high as 25% of your outstanding balance.

The IRS is quick to assess penalties and those penalties are challenging to get dismissed absent some very compelling reasons. If you can demonstrate reasonable cause, you may be eligible for a tax penalty abatement.

What Types Of Penalty Abatements are there?

The IRS offers two primary types of penalty abatements, one being First Time Abate Relief (“FTA”). Under this type of abatement, the IRS waives your penalties for one year if you qualify.

This abatement is only available to taxpayers that meeting the following criteria:

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Must have filed (or filed a valid extension for) all required returns and can’t have an outstanding request for a return from the IRS

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Must have paid or arranged to pay all tax due (can be in an installment agreement if the payments are current)

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Have no prior penalties (except a possible estimated tax penalty) for the preceding three years

First time abatement is a one-time deal and can only be used on one type of tax for one period.

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Pro Tip:

Few abatements are granted

The IRS has a tendency to deny the penalty abatement request from the start and it oftentimes has to be appealed in order to be accepted.

Other Types of Abatement

If you have penalties from delinquencies that span multiple tax years, you’ll have to provide the IRS with reasonable cause why you fell behind on your taxes.

As with all things related to the IRS, preparing an abatement request can get complicated, fast. There are eight common tax penalty abatement factors and each one has its own specific considerations that will be reviewed by the IRS.

Reasonable cause is based on a case by cases basis considering all the facts and circumstances. Some examples of reasonable cause are the following:

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Fires, natural disaster, or civil disturbances

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Inability to get records

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Death, serious illness, or unavoidable absence

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Mistake was made (must be very fact specific)

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Erroneous advice or reliance

Statistically speaking, very few abatements are granted, but you stand a much better chance when you partner with a skilled tax professional to prepare your abatement request. In addition, the IRS has a tendency to deny the penalty abatement request from the start and it often times has to be appealed in order to be accepted.

What’s one-time tax forgiveness?

If you aren’t typically late filing or behind on paying your taxes, you may qualify for one-time tax forgiveness if you meet certain stringent requirements. The IRS penalty abatement program can be a relief for taxpayers who find themselves in a situation where they made a mistake, missed a deadline, or are unable to pay their tax bill on time.

Am I eligible for the First Time Penalty abatement?

For most taxpayers, before even considering the first time penalty abatement, you need to be current on your tax filings and, if you owe any taxes, you’ll need to have them paid or be entered into an installment plan with the IRS.

You also must have a clean penalty history with the IRS. This means that you haven’t been assessed a penalty in the prior three tax years.

It’s not always straightforward to determine if you’re eligible for an abatement so you should speak with a tax professional before taking any action.

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What is considered reasonable cause for an IRS penalty abatement determination?

If your situation doesn’t meet the standard for a first-time abatement, you may need to establish reasonable cause to qualify for a penalty abatement.

Some of the most common types of reasonable cause are serious illness or death, fire or natural disaster, ignorance of the tax laws, inability to obtain records, or receiving bad advice from a tax preparer.