Penalty Abatement: The Do’s & Don’ts

TL;DR: Penalties and interest begin to accrue when tax payment deadlines are missed with no tax returns being filed. The most common penalties that individual taxpayers face are failure to file (FTF) and failure to pay (FTP). This guide explains who qualifies, the rules that apply, and how to apply them to your situation.

Penalties and interest begin to accrue when tax payment deadlines are missed with no tax returns being filed. The most common penalties that individual taxpayers face are failure to file (FTF) and failure to pay (FTP). There are some do’s and don’ts that taxpayers should acknowledge before taking the next step to request penalty relief.

What Is IRS Penalty Abatement?

Penalty abatement is the removal of penalties after they have been assessed to a taxpayer due to uncontrollable circumstances that made it difficult for the taxpayer to file or pay on time. Indebted taxpayers who meet certain circumstances may be eligible for penalty abatement, which can potentially reduce or eliminate IRS penalties and interest applied to their tax debt. According to the accurate and correct information that you present, the IRS will decide each case and decide whether to approve or deny the abatement requested.

The three penalties that take up the most percentage of IRS penalties out of approximately 150 tax penalties and are eligible for first-time abatement include:

• failure to pay (FTP) penalty: takes up to 56% of all penalties and will be imposed on your account if taxpayers do not pay taxes on time
• failure to file (FTF) penalty: takes up to 14% of all penalties and will be imposed on your account if taxpayers do not file their tax returns on time
• failure to deposit penalty: takes up to 4% of all penalties and will be imposed on your account if your business doesn’t pay employment taxes correctly or on time.

Notable Do’s

Utilize First-Time Penalty Abatement Relief (FTA)

Regardless of whether the taxpayer qualifies for reasonable cause abatement, FTA may be used for all first-year FTF and FTP penalties. If taxpayers are eligible, they should contact the IRS to request abatement in any FTF or FTP penalties.

Show Prior Compliance

The IRS Policy Statement 20-1 states that the IRS should use penalties to prevent non-compliance. You have the right to emphasize your prior years of compliance with your tax filings and be able to justify the small failure to pay circumstances. Getting reasonable cause relief is significantly increased if the taxpayer has a good history of being compliant with the IRS.

Appeal Adverse Determinations

Many IRS penalty abatement decisions don’t consider the entirety of the taxpayer’s circumstances. If any part of your evidence on your application fails to satisfy the requirements on its own, you wouldn’t be able to qualify. It’s best suggested that taxpayers submit an appeal request so that a real live person can hear all of their circumstances and make an informed decision as opposed to the flawed IRS tool that determines the fate of the taxpayer.

Notable Don’ts

Do Not Blame Tax Professionals Or Tax Software For FTF

Any FTF penalty abatement based on reliance on saying it was your tax professional or accountant’s or tax software’s fault will be denied by the IRS.

Do Not Pay The Penalty

If you pay the penalty before requesting a reasonable cause request, you can lose access to an important avenue of IRS appeals called the Collection Due Process (CDP) hearing. You can ask for a CDP hearing on an unpaid penalty if you have an unpaid balance.

Do Not Forget To Request Timely Abatement Before The Statute Of Limitations Expires

The regular refund statute of limitations, which is three years from the date the return was filed or two years after the penalty was paid, applies to requests for penalty abatement. In the past, the IRS has sometimes allowed abatements past the refund statute expiration date. The IRS has since fixed this system flaw, and it now rejects the majority of requests that are made outside of these windows.

Overview

Penalty Abatement is one of the four major components that our program, the IRS Fresh Start Program offers in order to solve your tax-related needs and issues. As you can see, the odds of success are slim when trying to remove the penalties attached to the tax debt that you owe to the IRS. By hiring tax professionals with a successful track record in abatement of penalties and interest, you can increase your chances of success or more desirable results.

Every opportunity is carefully considered in order to save you as much money as possible along the road. Our team tries to make sure you receive the best settlement possible at all times. It’s time for you to save hard-earning money and stop worrying about your tax debt every year. With the help of our tax experts, you can finally receive the assistance and guidance you need to live a debt-free lifestyle.

Resolve Your Tax Bills

If you’ve found yourself in a nasty mess with the IRS, take a deep breath. For taxpayers who may have difficulty paying off an excessive amount of tax debt, there’s a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!