If you don’t file your taxes or you don’t pay the IRS what you owe, then the tax agency has the authority to leverage financial penalties against your account. These penalties can stack up quickly, causing your overall tax debt to skyrocket.
Depending on the cause of your delinquency, you might be eligible to apply for IRS penalty abatement. Penalty abatement removes acquired fees and penalties on your account, but it isn’t provided to every taxpayer who applies. You’ll need to prove you had a reasonable cause that delayed your filing or payment.
The IRS determines if you had ‘reasonable cause’ to miss filing or paying your taxes on a case-by-case basis. They do this by analyzing whether you acted in good faith and the circumstances you may have faced during the time you should have filed or paid.
Taxpayers who have already incurred penalties and fees should learn more about the reasonable cause penalty abatement. If approved, then you could reduce your overall tax burden by getting certain penalties removed. To get help with the process now, contact us at Damien’s Law.
What is Reasonable Cause?
Reasonable cause means that you had a good reason for paying or filing late.
The IRS abatement of penalties reasonable cause exemption is usually granted when the taxpayer can prove that they were operating in good faith but were still unable to file or pay in time. Many situations can cause someone to be unable to file in time, including experiencing an emotionally or physically distressing situation such as the death of a loved one, being unable to access their financial details, or experiencing another unforeseen event such as a natural disaster.
When considering your circumstances, the IRS will often look back on past years’ returns. If you have a solid record of filing and paying on time prior to the year in question, then the IRS will be more likely to work with you and approve you for relief.
When considering your eligibility for penalty abatement based on reasonable cause, the IRS doesn’t think the following factors are good reason for failing to meet your legal tax obligations:
- Not having enough money to pay your taxes
- Not knowing that you had to file or pay or not knowing the due date
- Making a mistake
Each situation will be analyzed on a case-by-case basis by the IRS to determine if the reasonable cause exemption should apply. Some of the most common reasons that would lead to relief in the form of abatement include:
- Experiencing a natural disaster
- Suffering a death in your family
- Becoming very sick or getting injured
- Being unable to obtain the financial records you needed to file your taxes for a serious reason such as a fire.
Sometimes, the IRS will consider reliance on incorrect advice from a tax professional as reasonable cause for your penalties to be removed, but it depends on exactly what happened and what advice you received.
Requirements for IRS Reasonable Cause Penalty Abatement
Penalty abatement is never automatic. An IRS agent will carefully review your tax situation to determine if you qualify for relief.
That said, you’ll want to provide proof to the IRS that shows why you should be eligible for reasonable cause penalty abatement from the IRS. Depending on the reason you’re seeking the exemption, you may want to obtain copies of proof that show more about your situation such as:
- Hospital records or a doctor’s letter
- Documentation of natural disasters
- Police or official reports of a housefire, accident, or disaster
- Receipts or other forms of documentation backing up your claim.
Along with this evidence, you’ll need to explain the circumstances that prevented you from fulfilling your obligations. If possible, then be sure to mention any steps you did take to try to remain compliant.
Common Types of Penalties Eligible for Abatement
Not all penalties will be eligible for abatement. In general, IRS reasonable cause for penalty abatement applies to the following types of penalties:
- Unpaid taxes or failure to pay penalty
- Failure to file penalties
- Failure to deposit
- Accuracy-related penalties
- Returned check penalties
- Underpayment of tax penalties for individuals or businesses
Reasonable cause penalty abatement does not apply to situations that were within your control. For instance, if you don’t file because you were too busy at work or you simply didn’t take the time to do it, then you won’t be eligible for debt relief.
Examples of Situations Where IRS May Grant Penalty Abatement for Reasonable Cause
Over the past several years, Americans have experienced significant challenges, including health setbacks, financial obstacles, and an increase in extreme weather. Many of these struggles have resulted in situations in which taxpayers were unable to fulfill their tax duties.
One example of a situation where the IRS would likely grant a penalty abatement for a reasonable cause would be if you were impacted by the recent natural disaster of Hurricane Helene. This Hurricane caused widespread damage and loss of life. Many Americans will find themselves unable to locate specific documentation regarding their income levels, especially if their homes or businesses were lost in the disaster.
Another example that would warrant a reasonable cause exemption would be taxpayers who experience a house fire or businesses that lose records in a fire. In general, anytime a person’s records are inaccessible, they can be excused from not being able to provide that proof. This is becoming less of a problem in the modern era, though, since most records are stored digitally and online.
If a system or technological error causes a delay in your ability to file, then that also warrants a reasonable cause exemption. Most taxpayers file digitally. If your system crashes or there is a widespread network issue, then you can rest assured knowing that the IRS will likely grant a reasonable cause exemption.
Another unfortunate example that highlights when the IRS might give you a reasonable cause abatement is when someone in your immediate family suddenly passes away. Under these situations, it makes sense that your taxes become a reduced priority.
All this said it’s important to understand that these reasonable exemptions don’t apply forever. This type of exemption would only be considered reasonable if you seek to correct the tax problem in a reasonable time frame.
How to Apply for Penalty Abatement Due to Reasonable Cause
Most IRS penalties are issued automatically. For instance, when a return isn’t filed on time, a failure-to-file penalty is immediately issued. Your account or situation is not manually reviewed before the penalty goes into effect. This system does lead to erroneous and unfair penalties, which should be removed.
If you want to apply for an IRS penalty abatement reasonable cause exemption, then your first step is to gather together any documentation or proof you’ll need to show you had a reasonable cause.
Depending on your situation, your next best step might be to speak with a tax lawyer to review your options. If your attorney believes you’d likely be approved for abatement, then they can help you with the next steps of filing Form 843–Claim for Refund and Request for Abatement–with the IRS.
Other Types of Abatement
The IRS also offers the following two types of penalty abatement:
- First-time abatement – If you haven’t incurred a late penalty in the last three filing periods, you can qualify for first-time abatement.
- Statutory exceptions – This applies if you receive incorrect advice from the IRS or if you mailed your return on time but received a penalty when the IRS opened it late. Finally, this relief may be available to taxpayers in a federal disaster area or combat zone.
Note that if you apply for relief due to reasonable cause, but you qualify under the first-time abatement rules, the IRS will process the waiver as a first-time abatement.
When to Seek Professional Help
Are you currently weighing out whether you should attempt to apply for abatement on your own? In general, having a professional can help strengthen your negotiating position with the IRS. While the IRS might have plenty of reasons to approve abatement, they are never under any legal obligation to approve you for this type of debt relief. Having a legal advocate on your side can help you ensure that you’re getting a fair shot.
Professional help is also wise to consider if your tax situation has become overwhelming and complex. Penalties, compounding interest on your tax debt, and a lack of communication can all contribute to your situation becoming more challenging to resolve. A lawyer will know how to handle these complexities without limiting your legal options for debt relief.
Another great situation that warrants the help of a tax attorney is when the IRS has denied your attempts at seeking out a reasonable cause abatement. A good lawyer can help you identify what you can do to re-apply or negotiate with the IRS.
When you’re ready to submit your request, an attorney can help ensure that you have strong documentation that proves why you should get approved for abatement. They’ll also ensure that you file all your official paperwork correctly. They can field any communication from IRS agents, and they’ll advocate for you if the IRS attempts to unreasonably deny your request.
Understanding Penalty Abatement
Understanding your right to seek out a reasonable cause penalty abatement is important because, without this crucial help, you could wind up paying for penalties that you shouldn’t have to pay. If you experienced a circumstance that was outside of your control that caused a delay in filing or paying your taxes, then you shouldn’t have to pay a penalty.
If you’ve fallen behind on your tax obligations, then it’s worth your time and effort to consult with a tax professional. You could learn about tax debt relief options, like reasonable cause abatement, that resolve your problems, or at least make them much more manageable.
Schedule a Call With Damiens Law
Are you struggling to figure out the best way to handle your tax problems? Here at Damiens Law, our team of legal tax professionals has been helping clients resolve complex tax situations for over a decade. We can assist you in identifying the best way to handle your situation and get you back in good standing with the tax agency ASAP.
Our team is confident that we can handle questions regarding local, state, or federal tax laws. Schedule a free discovery phone call with our team now to determine if you might be eligible for a reasonable cause penalty abatement. We can also help you determine your options for handling any remaining tax debt on your account.
