Owing back taxes or penalties for taxes to the Internal Revenue Service (IRS) is always a stressful situation. This can become more overwhelming when you receive additional penalties on top of fines and face the potential of garnishments and levies.
The purpose of federal tax penalties is to motivate individual taxpayers and businesses to pay their taxes in compliance with the law. While receiving an abatement or waiver of penalties is challenging, it is not impossible. Qualified tax attorneys have the experience to help you through the process and could work tirelessly to reach the most favorable outcome.
If you have questions about the eligibility for an IRS tax penalty abatement, call a seasoned tax lawyer at Damiens Law, PLLC. Please call 662-442-4423 to schedule a consultation at our office in Mississippi and 901-499-4466 for Tennessee.
The most common penalties the IRS issues taxpayers
Penalties for not filing and paying Federal taxes in time are the most common. While there are approximately 150 potential penalties a taxpayer could face, there are only a few that make up the vast majority. Some of the most common penalties and fines the IRS issues to taxpayers include:
- Late payment of taxes: the IRS applies a 5 percent per month penalty on the entire balance up to 25 percent for failing to file and pay taxes before the deadline.
- Late payment of IRS penalties: they apply a 0.5 percent monthly penalty for failing to pay fines on time with a maximum penalty amount of 25 percent.
- Estimated tax penalties: the penalty for estimated taxes is also one of the most common.
- Penalties for inaccuracies: there is a flat 20 percent penalty for disregarding the regulations and substantial understatements.
- Combined penalties: for any month the taxpayer is late paying the taxes and fines they owe the IRS, penalties will compound on the amount they owe for both.
Taxpayers and businesses can avoid most tax penalties by avoiding input mistakes and paying their taxes by or before the IRS federal tax filing deadline.
First-time tax penalty abatement waiver
While there is potential to receive an IRS tax penalty abatement, many who apply for the waiver receive a denial letter. However, they are more likely to grant a first-time penalty abatement waiver or FTA. According to The American Institute of Certified Public Accountants AICPA, the IRS may grant a first-time abatement waiver or FTA to provide relief in some instances when the individual or business meets the criteria.
The Internal Revenue Service may approve the first-time penalty abatement and waive penalties for failing to file taxes or pay taxes and penalties. The agency does not grant the waivers for other types of fines or penalties, including penalties for inaccuracies. Filers who apply must follow the Internal Revenue Service’s procedure for the best chance of receiving a favorable outcome.
Requirements for a first-time abatement waiver
If the IRS finds the requester meets the following criteria, they will likely approve them for an FTA:
- The taxpayer must have a history of complying with the federal guidelines when filing their taxes.
- The FTA applicant must currently be in compliance with payment plans at the time of application and pay their taxes before the filing deadline.
- The taxpayer cannot have a history of federal tax payment penalties.
As per the AICPA, when taxpayers contact the IRS to request an FTA, reaching out to the agency by telephone is the best way to request the waiver and begin the process. While the IRS most commonly approves the first-time penalty abatement waiver, they may also grant waivers for reasonable cause.
Reasons the IRS may abate tax penalties for reasonable cause
There are strict guidelines taxpayers must follow when requesting an abatement from the IRS. If the requestor follows the procedure correctly and has a valid reason for requesting the waiver, the IRS could waive the penalties. Some of the most common grounds the IRS will abate penalties include:
- The IRS may consider abating penalties a person or business received because of natural disasters, fire, or casualties.
- They may also consider an abatement for families dealing with a recent death, incapacitation, or severe illness of an immediate family member.
- Finally, the IRS may consider an abatement of tax penalties if a business can prove they took all the appropriate steps to meet tax obligations but could not pay them on time.
As per the Internal Revenue Manual Section 18.104.22.168.2, the taxpayer must show they exercised reasonable care to determine and pay their federal taxes before the IRS tax filing deadline. Yet, they could not meet the requirements and make full payment of their federal taxes on time despite their due diligence. When a taxpayer can provide a valid explanation and proof of the description with the request for relief, the IRS may abate the applicable penalties. If the IRS finds sufficient evidence to provide relief for some penalties but not all of them, the taxpayer is responsible for paying the remaining fines.
How to establish reasonable cause for an abatement of tax penalties
The taxpayer or business must provide evidence to establish a reasonable cause for the abatement. A seasoned tax lawyer could help the applicant through the challenging approval process. Proof of good reason for late filings or payments includes:
- The requester should explain why they failed to pay taxes on time and when it happened.
- They should provide all the facts and circumstances that prevented the taxpayer from paying taxes or penalties on time.
- The taxpayer should explain how the circumstances prevented the business or person from paying within the IRS’s time limits.
- If the reason for late payment of taxes by a corporation or estate is because of one person, the IRS wants to know whether that person has sole authority to sign and pay tax returns.
Unlike the first-time abatement waiver, those requesting an IRS tax penalty abatement for a reasonable cause must always mail their request to the agency.
The common reasons for a denial of tax penalty abatement for reasonable cause
After a taxpayer submits their request for a penalty abatement, the Internal Revenue Service uses a tool to help with reviewing the information and documentation. The Reasonable Cause Assistant or RCA will make the initial uniform abatement decision. Unfortunately, the RCA does not review the taxpayer’s entire situation or history. Also, unless there is a specific question concerning a reasonable cause the requester submits, it will not ask for more information or documentation. It is not uncommon for the Reasonable Cause Assistant to issue a denial letter when the taxpayer does have the necessary circumstance and supporting evidence.
Unfortunately, many taxpayers with a reasonable cause for abatement often receive a denial during the initial uniform process. That is especially the case when the person does not follow the procedure exactly as the manual describes. If the requester receives a denial, they could have the right to file an appeal and request a conference or hearing. A knowledgeable tax attorney at Damiens Law, PLLC, could answer the taxpayer’s questions on eligibility for an IRS tax penalty abatement and help them through the complex appeal process.
The IRS penalty appeal eligibility
When the IRS rejects a taxpayer’s request to remove penalties and fines, the individual has 30 days to request a conference or hearing. The most common tax penalty abatement requests that go through the appeal process and receive approval are reasonable causes for late filing or payment of taxes. If the individual or business can show they exercised reasonable care during the conference or hearing and the circumstances were out of their control, the agency may grant the waiver. Individuals or companies may request an appeal for reasons, including:
- The individual taxpayer or organization mailed a letter to the IRS to request they remove a penalty.
- They received a denial to abate after submitting the request.
Filers are not eligible to receive a waiver of penalties if they cannot establish the reasonable cause facts with documents and supporting evidence. A skilled legal professional could review the specifics and help determine eligibility.
Schedule a consultation with a qualified tax attorney
Receiving a notice of penalties from the Internal Revenue Service is always worrying for everyone involved. Unfortunately, effective communication with a representative at the agency feels almost impossible in most circumstances. There are many ways the IRS may attempt to collect outstanding taxes and penalties. They could garnish wages, levy bank accounts, or place liens on your property. A certified legal professional could take some of the heavy burdens off your shoulders by handling communications on your behalf and guiding you through the complex abatement waiver application or appeals process.
If you need help with applying for relief or an appeal after receiving a rejection, and have questions about the eligibility for an IRS tax penalty abatement, call a seasoned lawyer at Damiens Law, PLLC. Call to schedule with our Mississippi office at 662-442-4423 or our Tennessee office at 901-499-4466.