Wednesday, September 24, 2008

Penalty Abatement

A common request I have from my clients is to prevent them from being responsible for the penalties and interest charged by the IRS. Along with getting an OIC, your chances of getting penalties removed from your IRS debt are slim to none. Penalties exist for a reason. The IRS enforces penalties and interest in hopes that you as a taxpayer will be encouraged to comply with the expectations of the Internal Revenue Code. For most taxpayers, voluntary compliance consists of preparing an accurate return, filing it timely, and paying any tax due. When you make genuine efforts to fulfill these obligations, you are being compliant in the eyes of the IRS. Most penalties apply to behavior that fails to meet any or all of these obligations.
The IRS will evaluate certain criteria when considering Penalty Abatement. The IRS may remove (abate) your penalty(s) for any of the following reasons:
  • Reasonable Cause: This is relief that is generally granted when a taxpayer exercises ordinary business care and prudence in determining their tax obligation, but is unable to comply with those obligations due to circumstance beyond their control.
  • Statutory Exceptions: The tax law provides for specific exceptions.
  • Administrative Waiver: This may occur as result of a formal government directive providing penalty relief because of a natural disaster or catastrophic event.

There are 5 reasonable cause criteria that the IRS will consider:

  • Death (spouse, siblings, parents, grandparents, children)
  • Serious illness
  • Unavoidable Absence
  • Inability to obtain records
  • Reliance on written advice from the IRS or advice from a tax professional

When you are trying to submit for Penalty Abatement you will have to prepare an Appeals Request with the IRS. Contacting a company that knows the IRM, and what your options are, is the best way to present your appeal to the IRS. This will also greatly increase your chances of success. I normally recommend that my clients use the Penalty Self-help tool on the IRS website to determine if applying for Penalty Abatement is a possibility.

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