October 7, 2022 | Tax Penalties
Internal Revenue Service (IRS) is a government agency that deals with the collection of taxes and regulates tax law in the United States of America. They are responsible for every type of tax operations. They operate under the Department of Treasury which is also a government agency.
As a taxpayer of the United States of America, it is your obligation to pay your annual taxes to the IRS by filing your returns on time. We know it is a headache for most taxpayers, but as a true citizen of the nation, you need to understand that paying taxes is your duty and collecting taxes is the right of the nation. And so, you should pay your taxes on time without complaining about anything. If you face any difficulties before or during filing your tax returns, you can take professional assistance from NYC tax lawyers. They will certainly assist you with this and you will not miss the deadline.
In case, you fail to file your taxes on time due to certain difficult circumstances, then the amount of your full tax that will be pending will be counted as your tax debts.
Tax debts are always a headache for the IRS taxpayers because it increases over time with the addition of interest and penalties. If the tax debts are left unpaid for one or more months after the deadline of tax submission, the amount of tax debts almost doubles. And then it becomes really very difficult for taxpayers to pay their tax debts to the IRS. So, it is always better to pay your taxes on time otherwise you can lose a huge amount of money on your tax debts only. And you will never want this to happen.
Tax debts increase due to the addition of interests and penalties. If you want to avoid these interests and penalties and get some relaxation on your tax debts, there are some provisions or schemes for you offered by the IRS. However, you can avail those schemes only if there are really some genuine situations that have compelled you to miss filing your returns on time. Those circumstances can be an inability to pay, long-term physical and mental illness, family crisis, and insolvency.
Let’s discuss those provisions or schemes that allow the IRS tax debtors to avoid penalties.
IRS Tax Debts Penalty Relief
If we talk about tax debts as a whole, there are many different tax debts relaxation provisions that are:
- Installment Agreement
- Partial Payment Installment Agreement
- Filing for Bankruptcy
- Offer in Compromise
- And Being Declared “Not Currently Collectible” by the Internal Revenue Service
You can utilize these provisions and schemes offered by the IRS to settle your tax debts or get some relaxation on your tax debts. However, to apply for these schemes, you need to meet the eligibility criteria of these schemes.
On the other hand, if we talk about the only penalty, two major relaxation options are:
- Penalty Relief Due To Reasonable Cause
- First-Time Penalty Abatement
Penalty Relief Due To Reasonable Cause
The IRS can abate the penalties on your tax debts under this provision. Generally, the penalties are levied on failure-to-file a tax return, failure-to-pay tax when due, and failure-to-make a deposit. To avoid these penalties under penalty relief due to reasonable cause, you must have proven reasons that can establish your situation for failure-to-file a tax return, failure-to-pay, and failure-to-make a deposit. If you don’t have convincing reasons, your request will be rejected by the IRS officers.
The IRS officers, under this provision, consider all the facts and circumstances of your case. They check if you tried your best to meet all the federal tax obligations with all your ordinary business care and prudence. If you did nevertheless you were unable to file your returns on time, you may be considered for penalty relief due to reasonable cause by the IRS.
Typically, in this provision, the IRS officers will consider your request:
- If you are involved as a victim in a fire, casualty, natural disaster, or other disturbances
- If you were unable to obtain records
- If death and serious illness were an issue with you or your family
- If you were compelled to miss the filing of returns due to an unavoidable situation
- If you tried your best to meet all the federal tax obligations with all your ordinary business care and prudence nevertheless you were unable to file your returns.
The documents you may require for requesting penalty relief due to reasonable cause are hospital and court records or a letter from your doctor (a certified doctor) about your illness and incapacitation. These documents must have specific starting and ending dates so that the IRS officers can determine whether these documents establish a reason for the failure-to-file, failure-to-pay, and failure-to-make a deposit.
First-Time Penalty Abatement
First-Time Penalty Abatement is commonly known as FTA. It is an administrative waiver that the Internal Revenue Service offers to the taxpayers to get relief from failure-to-file, failure-to-pay, and failure-to-make deposit penalties. This is only applicable to those taxpayers who have a clean record. So, whether as an individual or business entity, if you want to apply for first-time penalty abatement, you must have a great record. Under this waiver, the IRS considers filing compliance, payment compliance, and penalty history.
You can request first-time penalty abatement in three ways depending on your case. Those three ways are:
- Before the IRS assesses a penalty – You can file a penalty non-assertion request to request preventing the IRS from automatically assessing a penalty.
- After the IRS has assessed a penalty – You can request by writing a penalty abatement letter or by contacting the IRS.
- After the taxpayer has paid the penalty – You can request a refund using Form 843, Claim for Refund and Request for Abatement.