The law permits the IRS to entirely abate or reduce the penalties applied to a taxpayer’s debt. It is necessary to submit a written explanation that provides a reason as to why the penalties should be removed or reduced. The taxpayer has the burden of showing that their failure to comply with the relevant tax laws.
Generally, the IRS requires that the reason for penalty abatement falls into one of the following criteria:
- Reasonable Cause, used when the taxpayer has established that, despite the exercise of ordinary business care and prudence, they were unable to comply due to circumstances beyond their control;
- Erroneous written or oral advice furnished by an officer or employee of the IRS acting in their official capacity;
- Reliance on the advice of a tax advisor. Penalty relief based on reliance on the advice of a tax advisor is limited to issues generally considered technical or complicated;
- Circumstances that generally fall under the definition of “major disaster” (such as a hurricane, tornado, earthquake, etc.) or “emergency” and that affect a significant number of taxpayers located within a designated geographical area;
- The IRS also provides a First-time Abate option for penalty relief for the failure to file, failure to pay, and/or failure to deposit penalties if the taxpayer has not previously been required to file a return or if no prior penalties have been assessed on the same account in the prior 3 years.
When you are ready to learn more about what we can do for you, we encourage you to contact us.