Each year the IRS assesses millions of penalties against taxpayers.
The IRS imposes penalties in order to encourage voluntary compliance. Penalties may be based on substantial inaccuracies, the failure to pay tax when due, failure to timely file a tax return or other issues.
Qualified taxpayers, however, may get a reprieve. The IRS occasionally grants relief from penalties upon request.
One ground for an IRS penalty abatement is if the taxpayer had reasonable cause for not complying. Whether or not the taxpayer had reasonable cause is based on all of the facts and circumstances surrounding the taxpayer’s situation, including the taxpayer’s general history of compliance and whether the taxpayer exercised ordinary business care and prudence but nevertheless failed to comply with tax obligations.
The IRS will consider a sound reason for failing to file a tax return, make a deposit or pay tax when due. Sound reasons, if established, include (but are not limited to):
- Death, serious illness, or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family.
- Fire, casualty, natural disaster, or other disturbances.
- Inability to obtain the necessary records.
- If the taxpayer used all ordinary business care and prudence to meet tax obligations but was unable to do so.
These reasons are not automatic and require a showing of reasonable cause. Penalty abatement determinations are very fact specific and it is crucial for taxpayers to make sure that the IRS considers all of the facts and circumstances.
In addition to reasonable cause, the IRS may abate penalties in the case of certain statutory exceptions or waivers such as the first-time abatement penalty waiver. This waiver applies to taxpayers who have not have been assessed any other penalties of a “significant amount” on the same type of tax return within the past three years and are in compliance with all filing and payment requirements.
It is important to know your rights to dispute a penalty imposed by the IRS. If you have been assessed significant penalties, we can evaluate whether an IRS penalty abatement request is appropriate for you and craft a persuasive submission.
Contact us for a consultation.