Penalty Abatement - An IRS Program To Reduce or Remove the Interest and Penalties On Tax Debt For Qualifying Taxpayers.
Overcoming tax debt is something that can be difficult to do, and the longer that you wait to repay it, the more you can end up owing.
The IRS places fines and interest on tax debt, and in many instances the extra amount owed can make it even more difficult to repay the full amount.
In 2012 alone, a total of $26.8 billion in penalties were levied against taxpayers in a total of nearly 38 million separate cases. That's a large amount, and one that is hard to ignore. Penalties can be placed against you for:
• Failure to pay
• Failure to deposit
• Failure to file
• And more
For many who are facing large penalties and fines on their taxes, penalty abatement could help significantly and make it easier to repay your debt.
Penalty abatement is exactly what its name sounds like.
It's a process that will remove the penalties from your tax debt. It's possible because, as mentioned in the official IRS Policy Statement 20-1, these fines and penalties aren't actually in place to bring in more revenue but simply to discourage tax fraud and ignoring the payment of taxes.
In other words, the penalties are a deterrent, not just a way for the IRS to get more money. In many instances penalty abatement will be possible.
However, it's not a requirement. The IRS isn't required to offer penalty abatement to everyone who asks for it, and as a result you'll need to ensure that you meet the basic criteria set forth in the tax code.
The penalty abatement waiver has existed for more than 12 years, but is rarely used due to the fact that many aren't entirely sure how it works.
Here are the basic requirements for qualifying for penalty abatement.
• You can never have filed for penalty abatement before. It is a 'first time' abatement process, and those who have had tax trouble in the past can't use it.
• It can only be filed for a single tax period, not multiple infractions over time.
• You must be in compliance with all filing and payment requirements aside from the period you are filing for help for
• You must show reasonable cause in order to be approved. This means that you must show the IRS a reason that you were unable to pay your taxes on time. This could be a loss of wages or a disability that eliminates your ability to work for an extended period of time.
It's worth noting that there is a three year period of time that is usually used in determining eligibility. In other words, for those who had a penalty against them more than three years ago or who had a penalty abatement more than three years prior will actually still be eligible. The 'clean penalty' rule only applies to the previous three years. This is often misunderstood, and leads many who may be eligible for penalty abatement to ignore it entirely.
There are several different types of penalties that you can have removed through penalty abatement.
In general, failure to file, or failure to pay penalties are the types of fines and penalties that can be eliminated through this process. Business and payroll taxes can qualify as well. However, estate or gift tax returns won't be eligible for penalty abatement.
Other situations may qualify for abatement as well, and it's important to determine whether or not you will qualify before you go through the process of applying for abatement.
To request penalty abatement, a few options exist.
• The taxpayer can write a penalty abatement letter and request abatement. There is also an online process that allows taxpayers to file for abatement over the internet.
• If fines have yet to be levied, taxpayers are allowed to file a penalty nonassertion request with their standard paper tax return and request that they not have a penalty automatically filed against them.
• Taxpayers can also gain a refund on penalties that they have already paid. The claim must be filed within three years of the filing date, and the taxpayer will need to use Form 843 to make the request for a refund.
Once the process has begun, the IRS generally uses an automated system to approve or deny requests. The Reasonable Cause Assistant is a computer program that was designed to simplify the process of determining who is eligible for penalty abatement, and it is used in individual and business requests. It's actually required by the IRS that employees use this program to determine eligibility, but a large amount of controversy has arisen as a result of the software.
In fact, a 2011 report stated that 55% of all requests for penalty abatement that were put into the Reasonable Cause Assistant were determined incorrectly.
As a result, it's not uncommon to get a denial even when one is actually eligible for penalty abatement. This has already led to discussion within the IRS as to how to modify the determination process in order to help improve the accuracy of the process. One suggestion is to offer an FTA automatically to anyone who qualifies, though whether or not this option is to be adopted is still very much in doubt.
For now, those who are denied penalty abatement may be able to contact an IRS representative directly and discuss what options they have available. This process can be much more difficult than the actual initial request, and can take some time to do.
It's also worth mentioning that even those who have already made agreements with the IRS like an installment agreement can qualify for penalty abatement. In these cases the penalty may have already been paid and a refund will be the best option, but it is often not understood that being current on payments in an installment agreement is actually still considered to be current on tax payments.
There is also a cap on the amount of penalties that the IRS will actually abate.
This limit is unpublished, but it isn't uncommon to file for penalty abatement only to discover that their total penalty amount exceeds the threshold. In short, the IRS will still have the final say as to whether or not a penalty abatement request is accepted or denied.
Getting help from a tax law professional is the best way to ensure that a penalty abatement request is approved. A tax attorney can help determine whether or not you should qualify for abatement, file the appropriate forms, and then help argue your case if you're denied. While filing on your own is a valid option, taking the correct steps and appealing a denial that you feel isn't accurate can be very difficult to do and something that is best left to the professionals. Trusting a tax attorney helps take the stress off your shoulders in a big way, especially in instances where large penalties are being faced.
Gilland Law Firm has been helping those in the Salt Lake City area overcome their tax problems for years, and can help you with penalty abatement requests and much more.
Instead of turning over your case to paralegals, your case is actually managed by a tax attorney to ensure that the best results will be achieved no matter what the situation. Contact Gilland Law today to set up a consultation and find out more about your options for tax relief.