Methods for Getting Tax Penalty Relief
There are a few methods for having penalties reduced or waived by the IRS. They include obtaining a first-time penalty abatement, demonstrating reasonable cause or getting a statutory exception.
First-Time Abatement Administrative Waiver
As the name implies, this abatement method is for individuals and businesses who have never had a tax penalty before. The first-time penalty abatement waiver requires that you paid all your taxes on time for the three years prior to the tax year for which you were penalized and that you filed all of your returns on time. If this is the case for you, the IRS will normally remove the tax penalty because you have demonstrated that the issue was a one-time event and not a pattern. While the first-time abatement is the most common administrative waiver, there are other types that could potentially apply for some taxpayers.
In general, to demonstrate reasonable cause you would have to show that you took ordinary and reasonable steps to follow the rules and file and pay your taxes on time, but something outside of your control made that impossible. Reasonable cause is very subjective and takes into account the unique situation of the taxpayer.
Some examples of what may be considered reasonable cause for having a penalty abated include disasters such as fire and flood, death or serious illness in the family, riots and other civil disturbances, or even technical problems with the e-filing system that delayed processing. If you made a mistake on your taxes and were penalized, you may be able to get penalty relief depending on the specific reason for the error.
If you believe you have reasonable cause to have a tax penalty abated, it is important the reason is developed to put it into the best light to prove you were being reasonable under the circumstances.
Tax law also allows for statutory exceptions to penalties. Penalties may be waived for these reasons:
- You lived in an area that was declared a federal disaster zone.
- You were serving in a combat zone as a service member or a civilian.
- Your return was e-filed on time or mailed on time through the U.S. Postal Service or using specific DHL Express, FedEx or UPS services.
- You asked for information from the IRS, received written information that was wrong and relied on the incorrect information.
You can read more about statutory exceptions in the IRS Penalty Handbook.
Automatic COVID Tax Penalty Relief
Additionally, as announced in August 2022, the IRS is providing tax penalty relief related to the COVID-19 pandemic for certain 2019 and 2020 returns. Refunds for penalties already paid or abatement of unpaid penalties is automatic, so you do not have to apply. If you feel you were due a refund or abatement because of COVID-19 issues and did not receive one, Timothy S. Hart can review your situation and advise you about your options.
Appealing a Negative Penalty Relief Decision
If you have already applied for relief from a tax penalty and received written notice that you were denied, you may be able to appeal the decision. You have 30 days from the date on your notice to file an appeal, and there are certain criteria you will have to meet in order to be eligible to appeal.
Get Help Today with Tax Penalties
When you don’t have the money to pay your taxes, having additional penalties slapped on top of the debt you already owe can make a difficult financial situation seem hopeless. With the help of a highly skilled attorney who has assisted many taxpayers in having penalties reduced or removed, you could greatly improve your tax situation. Tax penalty attorney Timothy S. Hart has years of experience resolving tax penalties and negotiating tax settlement plans that help taxpayers get out from under the burden of IRS tax debt. To speak with him in a free consultation, call one of our offices today. To reach our NYC office call (917) 382-5142. Call (518) 213-3445 for our Albany office. For New York residents, The New York State Department of Taxation has similar penalty relief methods that our NY tax attorney can advise you about.
Why You Should Choose Tax Penalty Lawyer Timothy S. Hart
Timothy S. Hart is both an accomplished tax attorney and a skilled Certified Public Accountant, which provides him well-honed insight into federal tax laws and in-depth understanding of how the IRS operates and the authority that agents have to eliminate tax penalties. He is licensed to practice before the IRS in all 50 states, so he can help you no matter where you live. He is also licensed to handle New York State tax matters.
When you trust Timothy S. Hart with your request to have your tax penalties abated, you will receive responsive service and straightforward guidance to your problem. He will work extremely hard for you and will make the strongest case possible to the IRS on your behalf. He can also assist you in potentially seeking a tax settlement plan with the IRS or a tax payment installment agreement to further help alleviate your tax debt. You will never be left feeling confused or unclear about your options. You can count on our attorney to be there to answer your questions and alleviate your fears about facing tax penalties from the IRS.
Reasons that Tax Penalties Are Imposed
There are several reasons for tax penalties. Some of them are:
- Paying late and unfiled returns. Both the IRS and states charge a harsher penalty for not filing a tax return than they do for not paying the tax. Therefore, it is important to file your tax returns on time to help minimize penalties, even if you do not have the money to pay the taxes owed. When you file, you can apply to pay the tax through an installment plan or potentially an offer-in-compromise debt settlement that reduces the amount of tax you owe.
- Filing inaccurate returns. If you file an inaccurate return that takes deductions you aren’t qualified to take or underreports how much money you make and results in your paying less than you really owe in taxes, you could face penalties. If done by mistake, you may be able to get relief for reasonable cause depending on the error and circumstances. When people file inaccurate returns intentionally to avoid paying higher taxes, they may be guilty of tax fraud, which in addition to high penalties may also result in jail time in some circumstances. Penalties for underreporting income by $100,000, which is an extreme example but does happen, can lead to a fine of 75% of the unreported amount or $75,000, plus interest on that amount.
- Not paying enough in estimated payments or tax withholding. Small businesses that do not pay enough tax during the year through estimated tax payments may be subject to underpayment penalties. This is also true of individuals who do not have enough tax withheld.
- Failing to pay employee taxes to the IRS. Businesses with employees may also be subject to an expensive trust fund tax penalty, also called a trust fund recovery penalty, if they knowingly fail to pay withheld employee taxes to the IRS.
Sometimes a combination of tax issues can result in penalties. And if issues are not resolved, penalties and interest will keep adding up, making tax burdens even larger. Whatever the reason you have been assessed a tax penalty, attorney Timothy S. Hart will pursue the best outcome for you based upon your unique circumstances.
How You Can Reduce Tax Penalties and Interest
First, do not be afraid to communicate with the IRS. If you are told that you are being assessed a penalty and you believe it is unfair, gather the evidence that supports your position and file a written request for penalty abatement. Be sure it is in writing so you have hard proof that you made the request. We can guide you through this step, including advising you about how best to present your evidence and then filing the request for you. In your request, clearly explain the reasons why you did not file your tax returns, why you paid late or why the other issue occurred that led to the tax penalty.
IRS agents are tasked with the job of collecting unpaid taxes, but they are also human. When you have a compelling reason as to why the issue occurred that led to your being penalized, the IRS agent may reasonably consider your situation and work with you by reducing or erasing your tax penalty.
If your request for penalty abatement is unsuccessful, consider appealing the decision. Our attorney can assist you with the appeal.
To head off more penalties and interest charges, pay off any back taxes you owe as soon as possible. Penalties and interest will keep accruing even if you have an installment agreement, unless you are able to negotiate otherwise, but you will pay a reduced penalty rate if you filed your tax return on time.