Learn About Options for Penalty Abatement from an Experienced IRS Tax Lawyer
The Internal Revenue Service is mandated by law to actively pursue people with tax liabilities. To have the “teeth” to collect taxes owed, it imposes harsh penalties on errant taxpayers. These penalties can quickly add up and seriously affect the financial freedom of people who owe back taxes. At Timothy S. Hart Law Group, P.C., our experienced tax attorney may be able to help you reduce the penalties you owe the IRS.
Even though the IRS has tough methods of collecting taxes, including by instituting expensive penalties, tax authorities recognize that there are various reasons why people fail to file their taxes or to pay the full amount due. With this recognition comes room for compassion, why is why the agency created the IRS Penalty Abatement petition. Under this arrangement, the penalties on your tax liabilities can be reduced or even erased.
Reach Out to Timothy S. Hart Today For a Free Consultation
To learn whether you may qualify for this program, reach out to our IRS tax attorney
today for a free consultation. Call our Albany office at (518) 213-3445 or our New York City office at (917) 382-5142. Even though our offices are located in New York, Timothy S. Hart is licensed to handle IRS issues in every state in the country so may be able to have your IRS penalties reduced no matter where you live.
What Penalties You May Incur
The failure to file penalty is assessed when a taxpayer fails to timely file a tax return. The penalty is generally 5% of the unpaid taxes for each month or part of a month that the return is late, up to a maximum of 25%. The penalty for failure to pay tax debt on time is assessed when a taxpayer does not pay the taxes owed by the original due date of the tax return. The penalty is 0.5% of the unpaid taxes for each month or part of a month, up to a maximum of 25%. There is an offset of the two penalties, so the total penalty for failure to file and pay on time is generally about 47.5%.
As stated above typically the best way to seek penalty relief is to prove Reasonable Cause
. Reasonable cause may be established if the taxpayer can demonstrate that he or she exercised ordinary business care and prudence in meeting the tax obligations, but nevertheless failed to file or pay on time. The penalty relief will be granted if it can be shown that there was a reasonable cause for the failure to timely file or pay taxes or that the penalty would create a current undue financial hardship to pay and a financial issue existed at the time of the missed tax payment. This standard is hard to meet in practice, and that is why getting help is needed.
Each case is unique and should be evaluated carefully by a competent tax attorney. The first step is to determine the amount you owe, and what type of penalty was charged. The next step is to apply for penalty abatement. It is important to keep in mind that the penalty abatement request alone will not resolve penalty issues. It serves as a starting point but it does not typically end there since in most cases the initial penalty relief is denied and then needs to be appealed. The actual form to request the penalty abatement is Form 843. IRS Form 843 penalty abatement request can be download here.
How Can I Get the IRS to Forgive Me for Penalties?
Penalties are put in place by the IRS to send a message to taxpayers that compliance with tax laws should be strictly observed. However, if a taxpayer has enough “reasonable cause” to justify their failure to comply, the IRS may consider the taxpayer’s situation and possibly give consideration.
For this reason, taxpayers who believe they have reasonable cause should never be afraid to challenge, question and appeal when a penalty is enforced on them for back taxes
. A knowledgeable IRS tax attorney can assist you in this effort and potentially help you in getting penalties reduced.
What is Reasonable Cause as a Method to Reduce IRS Penalties?
Reasonable cause is determined subjectively. If the failure of compliance is caused by difficult circumstances, the IRS may, as a good faith step, conduct an investigation of the reasons behind the tax difficulty and may work with taxpayers who have compelling reasonable cause.
Reasonable cause can be shown in this example: The taxpayer did not receive the K-1 from his or her partnership, but otherwise filed and paid his taxes on time. In this example penalty relief would be granted because the taxpayer exercised ordinary business care and prudence in meeting tax obligations, but nevertheless filed a return by the due date.
The Internal Revenue Manual
provides the context of reasonable cause. While it may be a subjective concept, it has clear guidelines as shown here:
- Reasonable cause is determined by the facts and circumstances of a tax debtor. This allows the Internal Revenue Service to provide IRS tax relief for the cases involved.
- Businesses and taxpayers who exercised care and prudence in identifying their tax obligations may be given consideration. They must undergo thorough investigations as well.
- The abatement of civil penalties must be made in a consistent manner and must conform to Internal Revenue Code (IRC), Regulations, Policy Statements and Part 20.1.1.
Every taxpayer’s situation is unique. Reasonable cause as described by the IRS is “based on all the facts and circumstances” of a taxpayer’s situation. Taxpayers who try to meet their tax obligations but just do not have the financial wherewithal to do so may qualify to have penalties reduced. However, as the IRS notes on its website
A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.
Our tax attorney Timothy S. Hart can help you determine if your situation amounts to reasonable cause for getting relief from the tax penalty. You can arrange a free consultation with him by calling our Albany office at (518) 213-3445 or our NYC office at (917) 382-5142.
What Types of Tax Issues Result in Penalties?
There are five typical reasons that federal tax penalties are imposed. They include the following:
- Inaccurate declaration of earnings or deductions on tax returns. If you earned more than stated on your tax return or took deductions you didn’t qualify to take, and consequently paid less in taxes, you could face penalties.
- Underpayment of taxes. If you are an individual or small business who did not pay enough tax during the tax year through withholding or estimated tax payments, you could get slapped with an underpayment penalty.
- Failure to file or filing late returns. This penalty is 5% of unpaid taxes for each month that a return is late.
- Tax fraud, which is intentionally attempting to not pay taxes owed, can lead to severe financial penalties (as well as jail time). As an example, if a person willfully underreports their income by $100,000, the IRS will issue a fine of 75% of the underreported amount, which adds up to a penalty of $75,000. And this does not include interest.
- Combined circumstances. Sometimes a variety of circumstances can result in underpayment, late payment or no payment of taxes and subsequent penalties.
It is wise not to go it alone if you have had tax penalties imposed. Our tax attorney
in New York can review your situation and advise you about possibly having your penalties reduced.
How Can I Reduce My Tax Penalties?
There are various strategies and steps for reducing tax penalties. What is the right strategy for you to reduce your tax penalties depends on your individual situation. Here are some possible ways to reduce penalties:
- Pay off the taxes and interest due as quickly as possible. If you can’t pay what you owe in full, you may qualify for an installment payment plan or a tax settlement that allows you to pay less that you owe.
- File your tax returns and attend to other necessary paperwork so that you can get back on track. Then send a letter to the IRS that requests the elimination of penalties. You need to send it through certified channels to have proof of mailing.
- Ask the IRS to reduce or eliminate penalties by highlighting the reasons why you are having difficulties with payment. Whether it is a medical problem or a sudden economic hardship, a compelling reason may help convince tax authorities to reduce penalties. If there is a human element in your IRS case, you may have a better chance for penalty abatement.
If the IRS denies your initial request for penalty abatement, you may wish to try again by sending another letter asking for abatement. If your abatement request letter is written in such a way that it effectively communicates your difficult position as a tax debtor and conveys the reasons behind your financial difficulties, your request may be accepted.
The IRS is not an agency made up of stone-cold people. They are just doing the jobs they are tasked with to improve tax collection in the country. If the reasonable cause of your case is compelling enough, the IRS may well provide means to help you overcome and manage your tax debts.
If you are denied abatement and the penalty has become very large, you can also request that the Appeals department of the IRS become involved in your case. This is another potential avenue to having IRS penalties reduced.
In addition, penalty abatement may be available if undue financial hardship is shown. Undue financial hardship can include an extended illness of a family member where uninsured medical expenses are incurred totaling a considerable amount of money. Other examples would include foreclosure on a home, eviction, bankruptcy filing which results in unaffordable payment arrangement with creditors where people are unable to pay their bills including tax bills. Another example is if someone was unexpectedly laid off from their job resulting in a sudden loss of income or a health issue caused them to need hospital care for an extended period of time.
Contact Attorney Timothy S. Hart for Help Getting IRS Tax Penalties Reduced
Providing Effective Legal Representation in IRS Tax Matters
Having your IRS tax penalties reduced can be the relief you require to alleviate burdensome financial stress and move on with your life. Whether you need help drafting your initial penalty abatement letter to the IRS or wish to file an appeal if your penalty abatement request was denied, it can be to your great benefit to have the help of an attorney with in-depth understanding of federal tax laws and how the IRS operates. Attorney Timothy S. Hart is a skilled IRS tax attorney with years of experience assisting taxpayers who owe the IRS penalties and are facing other complex tax problems. He is also a Certified Public Accountant, which allows him a complete and comprehensive understanding of tax issues.
Timothy S. Hart will carefully review your overall tax situation and counsel you about the potential for having tax penalties reduced or eliminated. He represents taxpayers nationwide in federal tax cases. Do not wait to get effective tax penalty advice. Depending on your circumstances and situation, it can make the difference in how much you owe in tax penalties or even whether you will owe anything at all.
Call us today at our Albany office: (518) 213-3445 or New York City office: (917) 382-5142 to arrange a free consultation.