An IRS tax penalty notice can be an unwelcome surprise, particularly for those individuals who do their best to comply with the Internal Revenue Code. Fortunately, there are a number of legal methods available that can, depending on the circumstances, reduce or eliminate such penalties. Below is an overview of some common tax penalty waivers.
- First Time Penalty Abatement – The first time penalty abatement is a particularly useful tool for individuals who’ve had minimal tax problems in the past. This waiver applies to failure to deposit, failure to file, and failure to pay penalties. In order to qualify for this waiver, one may not have had any tax penalties of a significant amount in the previous 3 years. For penalties assessed prior to this time period, eligibility is assessed on a case-by-case basis.
- IRS Error – If a taxpayer is penalized based on a mistake by the IRS, all associated penalties may be waived. All that is required to obtain this waiver is evidence demonstrating the error. Therefore, if one believes that a tax penalty is due to a mistake by the IRS, it may be useful to consult a tax expert for assistance in compiling the necessary supporting documentation.
- Administrative Waiver – Sometimes the IRS decides to willingly waive a tax penalty that is warranted by law. Administrative waivers are typically granted when, due to IRS action, taxpayers are unable to comply with the tax laws. For example, this waiver could apply if, due to the IRS’s failure to make available certain required documents, taxpayers were unable to meet their filing obligations.
- Statutory Waiver – Statutory waivers are penalty exceptions detailed in statute. Examples of statutory waivers include filing errors based on written advice by the IRS and late filings due to natural disasters.
- Reasonable Cause – Reasonable cause waivers are granted on a case-by-case basis and, as the name implies, are applied when the IRS determines that a reasonable cause exists for a taxpayer’s failure to follow the tax laws. Specifically, a taxpayer is eligible for this waiver when “…the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations.” (Internal Revenue Manual §184.108.40.206.2). This type of waiver only applies to penalties assessed for failure to file and failure to deposit. Reasonable cause waivers are typically granted when tax violations occur due to circumstances beyond a taxpayer’s control, such as illness, death, and natural disasters.
Federal tax law is a complicated subject, and it can be difficult to navigate the abatement process alone. If you’ve been penalized by the IRS, it’s imperative that you engage the services of an experienced tax attorney in order to ensure that you understand your abatement options. Please contact us for a free consultation at (720) 897-1550 or (888) 694-2093 (toll-free).
Posted in: Tax Law