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Penalty Abatement

Will the IRS Waive or Abate Penalties? 

If you owe the IRS back taxes, it is likely you owe penalties too. The use of penalties is one way the IRS “encourages” voluntary compliance with federal tax filing and payment laws. The most commonly assessed penalties are the failure-to-file penalty, accuracy-related penalty, failure to make estimated tax payments penalty, and failure-to-pay penalty. (There are many more!) What makes penalties particularly burdensome, especially if your balance due is large, is that over time penalties can be imposed up to an amount equal to 25% of the total tax due, or more, depending on the nature of the penalty.  

Fortunately, in certain situations, you may be able to obtain relief from the penalties through a request for penalty abatement. Generally, penalty relief is available through reasonable cause abatement and first-time abatement.  

Reasonable Cause Abatement. If you can prove that your noncompliance in fulfilling your tax filing or payment obligations was due to a reasonable cause, and not due to willful neglect, then the IRS may grant penalty abatement. Possible reasonable cause examples include, depending on the facts and circumstances, the occurrence of fire, flood, tornados, casualties, reliance on bad advice from a tax practitioner or the IRS, death, serious illness, or an unavoidable absence. 

To establish reasonable cause, you must show that you exercised ordinary business care and prudence but were nevertheless unable to timely file your return or pay the tax due. Establishing reasonable cause can be difficult because the IRS not only considers the initial reason for the noncompliance but also what measures you subsequently took to resolve the noncompliance. The IRS considers all the facts and circumstances, including whether the noncompliance was out of your control, your compliance history, and the length of time it took you to become compliant. So, while failing to timely file your return due to an unexpected serious illness and/or hospitalization just prior to the filing deadline may be reasonable, failing to file your return for several years after you overcame the illness or returned home may not be so reasonable.  

If you want help determining whether you qualify for reasonable cause penalty abatement, contact us. The Law Office of Cheri P. Wendt-Taczak, LLC would be happy to help! 

First-Time AbatementThrough the first-time penalty abatement (“FTA”), eligible taxpayers may obtain administrative relief from a failure-to-pay penalty, failure-to-file penalty, and/or failure-to-deposit penalty imposed as to a single tax year. To be eligible for FTA, (i) you must be in current filing compliance, meaning that you filed all currently required tax returns or requested an extension to file; (ii) you must be in current payment compliance, meaning that you paid or made arrangements to pay, any tax balances due; and, (iii) no penalties may have been imposed for the prior 3 years, except for a failure-to-pay estimated tax penalty. The FTA may be granted even if you are not eligible for reasonable cause abatement. 

If you would like more information about the first-time abatement or help determining whether you qualify for it, contact us.  The Law Office of Cheri P. Wendt-Taczak, LLC would be happy to help! 

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