Tax help companies consistently advertise that they can get rid of penalties on taxes, Which leads many to question, "How can they make that promise?" and "Is it possible to eliminate all IRS penalties?"
The reality is that while the IRS may reduce some or all of the penalties, the taxpayer must have a legitimate reason for not paying the taxes and should be in a position to deal with cause of the penalty: the IRS or state taxes.
What is Penalty Abatement?
Penalty abatement is the full or partial elimination of the interest and late fees assessed by the IRS or other tax authority. It is not the elimination of the taxes. While taxpayers may be able get rid of some, or even all of the fees and interest that accrue, the base tax amount will remain and must be satisfied to prevent further penalties from accruing.
Eliminating penalties can alleviate the stress that comes from the financial burden. It can make an impossible burden seem suddenly manageable. However it is important to note that taxpayers who are granted a full or partial abatement must remain in compliance with the IRS or state tax authority to prevent the problem from reappearing.
When to Request An Abatement of IRS Tax Penalties
There are several reasons why the IRS might grant a penalty abatement. Taxpayers who can pay the underlying tax liability must provide a valid reason why the IRS should remove the penalties associated with those taxes. The IRS will typically consider hardships when evaluating their decision. These can include:
- A major illness
- The death of a family member
- Job loss where the duration of unemployment was extensive
- Natural disaster (flood, hurricane, etc.)
- Divorce
- Poor counsel from a trusted adviser
While not exhaustive, this list illustrates that the IRS will expect that the hardship be severe and verifiable to consider the request.
Dealing With IRS Penalties Caused by Error
In some cases, there is a legitimate reason why the tax is not owed. The reasons could range from wages being mis-reported to fraud and include everything in between. When penalties are levied against erroneous taxes, it is essential to document the penalties and address the root problem in order to prevent future issues.
Presenting the Case Using IRS Form 843
A penalty abatement can be requested verbally or in writing using IRS Form 843. A competent tax professional will use the IRS form along with a cover letter detailing the specifics of the case so the IRS agent who reviews the document has a clear understanding of the reasons for the request. The reasonable cause and administrative factors should be well documented.
To sum it up, the IRS takes a hard stand against taxpayers who get behind on taxes. To qualify for an abatement, the case needs to demonstrate that there were factors beyond the taxpayer's control that prevented the payment of the tax. The taxpayer should also be in a position to pay the underlying taxes.
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