IRS penalties are more common than the average taxpayer may think. In fact, the IRS charges a penalty of up to 25% for failure to file tax returns in a timely matter, as well as an additional 25% penalty for unpaid tax debt.
While failure to file and pay is the most common penalties, the IRS may hit you with countless other penalties. These penalties will continue to accrue until the taxpayer has paid their balance in full.
Commonly Assessed IRS Penalties:
1) Failure To File Penalty:A penalty designated for individuals who fail to file their tax returns by the due date. This penalty can total up to 25% of the original amount of taxes owed.
2) Failure To Pay Penalty:A penalty designated for individuals who fail to pay the full amount of taxes owed (as reported on their annual return) by the due date.
3) Failure To Pay Estimated Tax:a penalty designated to individuals who fail to make the proper quarterly estimated tax deposit payments.
4) Dishonored Check:a penalty designated to individuals whose payments are not honored by their bank.
What Is IRS Penalty Abatement?
Penalty abatement refers to the termination or reduction of the penalties and the interest on said penalties. This program is only available to taxpayers with penalties such as failure to file, failure to pay and failure to deposit penalties. Under the IRS' discretion, certain other penalties may also qualify for relief. Additionally, individuals must meet the IRS' requirements for the penalty abatement program. Individuals seeking relief from the burdens of IRS penalties should procure help from a qualified tax professional when requesting penalty abatement.
Penalty Abatement Program Qualification
To qualify for the penalty abatement program, individuals must meet the IRS' requirements. The primary requirement for penalty abatement is taxpayer compliance. Taxpayers should be up to date with filing and paying their taxes for at least three years before applying for penalty abatement. Additionally, the applicant must also have "reasonable cause" for failure to meet tax obligations. Listed below are a few examples of reasonable cause:
- - Illness, injury, or death
- - Natural disasters (i.e. fires, floods, earthquakes, etc.)
- - Inability to obtain old tax documents
- - Errors on tax documents
- - Wrongful advice from a tax professional
Although it is possible to negotiate a penalty abatement settlement with the IRS on your own, it is in your best interest to secure the guidance of a qualified tax expert. Our team of tax attorneys, enrolled agents, CPAs, and case managers have extensive experience in achieving penalty abatement for our qualified clients. We'll make sure to keep you informed throughout the process by updating you with only the necessary information. Instead of spending hours researching the details of penalty abatement, let our team get your life back!
IRS Penalty Abatement FAQs
You may apply for penalty abatement by calling the toll free number on your notice letter. You can also fill out and mail in your application to the return address on your notice letter. However, it is in your best interest to consult a tax professional who has experience negotiating with the IRS to successfully achieve penalty abatement.
To apply for penalty abatement, you must first establish "reasonable cause" (see below). Generally, the IRS will request evidence of reasonable cause to assess the situation accurately.
For example, if your reasonable cause is an illness you must provide hospital records or a doctor's note as proof. Other documents you may need are court records and legal documentation of events. If you choose to work with a tax professional to resolve your penalties, your designated professional will let you know of any documents you will need.
As mentioned on our penalty abatement resource page, the IRS accepts a variety of reasonable causes. Each taxpayer's situation is unique, and therefore, the reasonable causes will depend on the individual's finance and circumstances. Keep in mind that insufficient funds are NOT considered reasonable cause for failure to pay or file.
The IRS does NOT forgive interest. However, they will forgive penalties and interest accrued on said penalties.
The IRS will come after you if you choose to ignore your tax obligations. Individuals who refuse to pay back the funds owed for penalties will face various problems, including enforcement action and federal tax liens..
The IRS must accurately assess the details of every case, which can be time-consuming. The length of time for penalty abatement determination can vary from 30 days to six months.
The IRS can deny your application to penalty abatement for many reasons. However, you may appeal the IRS' denial and reapply.
If you disagree with your penalty's accuracy, then you may file to contest the penalty via Form 843. You may send the application to the return address on your IRS notice.