Hillhurst Tax Group

IRS Penalty Abatement

If you have unpaid taxes and face Internal Revenue Service tax penalties, requesting an IRS penalty abatement is often the best way to reduce your tax debt. Since IRS penalties often represent a significant portion of a taxpayer’s total tax debt, a penalty abatement can significantly reduce the amount you owe the government.

What is a Penalty Abatement?

At its most basic level, a penalty abatement is when the IRS removes any penalties that have been assessed against you. While the IRS can assess penalties for a broad variety of reasons, the most common include failure to pay, late filing, and accuracy. Taxpayers who have received a penalty abatement are still responsible for any unpaid tax they owe.

The IRS does not automatically issue abatements to taxpayers. You must request one. It is also relatively uncommon for the IRS to abate penalties, with recent statistics showing that only about 11% of tax penalties are abated. Additionally, the IRS grants abatements based on fairness and the taxpayer’s ability to pay the tax, penalty, or interest due are not considered.

The IRS charges interest on any penalties it has assessed and getting your penalty abated will also eliminate any interest due on your penalty.

Do I Qualify for a Penalty Abatement?

According to the IRS, you may qualify for penalty relief if you attempted to comply with tax laws but could not pay your tax obligations due to circumstances beyond your control. But the IRS says that most grants of penalty abatement fall within four categories:

  • Reliance on erroneous IRS advice
  • Statutory and regulatory exceptions to the penalty provided for in tax laws
  • Administrative waiver to facilitate tax administration, including the first-time penalty abatement and hardship failure to pay penalty relief
  • Reasonable cause

A first-time penalty abatement is available to taxpayers who have had no previous compliance problems and have been assessed penalties for failure to file, failure to pay, or failure to deposit.

You must also meet the following qualifications:

  • You had no penalties for the three tax years before the tax year for which you received the penalty or were not required to file a return.
  • You have filed all of the required returns or filed for an extension of time to file.
  • You have paid, or arranged to pay, the tax due.

Reasonable Cause for Penalty Abatement

Most taxpayers who do not file for a first-time penalty abatement from the IRS will seek a reasonable cause penalty abatement. The most significant factor the IRS will consider when determining whether you are eligible for a reasonable cause abatement is whether you acted in good faith. It will also evaluate whether you made reasonable efforts to report the correct tax liability but failed to comply due to unforeseen circumstances beyond your control.

Reasonable Cause Examples

Some examples of reasonable causes that have been accepted by the IRS include:

  • Reasonable reliance on a tax professional’s advice
  • Ignorance of the tax laws
  • Medical illness
  • Significant financial hardship
  • Death in the family
  • Natural disasters
  • Destruction of records
  • Incarceration

Remember, in most cases the IRS will require you to provide documentation to support your claim for a reasonable cause penalty abatement.

How Do I File a Penalty Abatement Request?

If you are pursuing a first-time penalty abatement, you can simply call the IRS and request the abatement over the phone. If a local IRS office is handling your case, you may need to reach out to that office. If your phone request for a first-time abatement is granted, the IRS will send a letter that the penalties were removed within 30 days.

Requests for other types of IRS penalty abatement, including reasonable cause abatements, are rarely granted over the phone, so those requests should be made in writing. If you seek a penalty abatement for reasonable cause or an IRS error you also have the option of using a Form 843, Claim for Refund and Request for Abatement.

Denied a Penalty Abatement? Here’s What to Do

The IRS rejects most of the penalty abatement requests it receives so you should not be surprised if yours is turned down. But if you believe the IRS wrongly rejected your request, you still have the option of seeking an appeals conference or hearing. Appeals conferences and hearings are conducted by an IRS appeals officer who can fully assess the facts and circumstances surrounding your abatement request.

In most cases, you have 30 days from the date the IRS issued the rejection letter to request your appeal.

Contact Us for Help Filing a Penalty Abatement

If you feel that the IRS is forcing you to pay unfair penalties due to circumstances beyond your control, the skilled tax professionals at the Hillhurst Tax Group can help. Our experienced staff can assist you in determining whether you are eligible to pursue an IRS penalty abatement and represent you throughout the abatement process to ensure your rights are protected.