Introduction to Penalty Abatement

We all know that Inland Revenue Service (IRS) penalties can be quite severe. If you check out the IRS Penalty handbook, it says that “civil tax penalties exist for the purpose of encouraging voluntary compliance.” In other words, the penalties are put in place to try to ensure that you don’t even think about not paying your taxes on time.

Exactly the same approach applies to the interest that can be charged on past due amounts. Interest is purposely set extremely high to encourage people to meet their tax obligations. Ignore it at your peril, as penalties and interest can soon end up doubling, or more, the amount that you owe.

Depending on the exact circumstances, it is possible to avoid paying the penalties, and even the interest. However, you should be aware that these are not common occurrences. As far as the IRS is concerned, you owed the money and you didn’t pay it, so they do not have any problem penalizing you.

If you do decide that you’d like to try to abate the penalty, you should be aware of the circumstances in which the IRS may agree. First of all, the IRS will look into your history. If this failure to pay taxes on time is your first offense, then they’re likely to be much more lenient with you than they would with somebody who regularly fails to meet their tax obligations. If you fall into the latter category, you will need to have an extremely good reason for it.

Secondly, as is the case whenever you are in trouble with the IRS, make sure you are current with filing and tax payments from this point forwards. For example, if your tax penalty was from two years ago, but you’ve filed and paid taxes in the years since, you are more likely to be able to persuade the IRS to be lenient with you.

Now comes the hard part – convincing the IRS that your failure to comply was “due to reasonable cause, not due to willful neglect.” Essentially, this is saying that the reason for you non-compliance was beyond your control. Apologizing because you simply forgot, or didn’t have the money to pay, is not going to help you progress very far.

On the other hand, if there was a death or serious illness of the taxpayer or the taxpayer’s immediate family, this might be considered a good reason. Similarly, natural disasters (fire, flood, or earthquake) might also be considered acceptable – the IRS does have a heart, as shown by its leniency in stretching deadlines for victims of Hurricane Sandy. If the IRS gives you incorrect advice, either written or oral, this would also be acceptable, but good luck in trying to prove the latter.

You should also be aware that the IRS will only consider one request for penalty abatement, so you need to make sure you get it right, first time. This is one of the areas where tax resolution companies excel. For example, while 20/20 Tax Resolution certainly is not going to suggest that you make up stories to try to avoid penalties, the tax experts will help you to frame your reason in such a way that it stands the best possible chance of being accepted by the IRS.