Penalty Abatement Relief
What is Penalty Abatement Relief?
Penalty Abatement eliminates penalties for failing to file tax returns or making payments on time as an individual. Additionally, penalty abatement can apply for failing to deposit certain taxes as a business. In other words, the IRS may waive penalties for those compliant with the law but unable to pay taxes due to circumstances. There are three types of penalty relief that the IRS offers:
First Time Penalty Abatement
Since there are three types of penalty abatements available, a tax professional should be consulted before any action by you is taken. Moreover, a tax professional better understands the application of these waivers and how to qualify for them. After all, they have the training, education, and experience that qualifies them to determine eligibility.
First: What is Reasonable Cause?
Reasonable Cause, as defined by the IRS, is based on all facts and circumstances in your situation. Moreover, it must be established that you followed all procedures to meet your tax obligations but due to certain circumstances, were unable to meet them. Furthermore, the IRS notes that financial hardship does not make you eligible for the reasonable cause waiver but the circumstances that led to the hardship may make you eligible.
Eligible causes include:
Inability to obtain records
Unavoidable absence of taxpayer or immediate family
Second: What is First Time Penalty Abatement (FTA)?
Briefly, this type of penalty relief is meant to reward those who typically meet their tax requirements. Consequently, you are eligible for penalty abatement if you typically follow tax procedures and obligations but for the first time, could not meet your tax obligation on a single return. Subsequently, you must not have received a penalty on the specific type of return within the past three years in order to be eligible for this waiver.
You Are Eligible for FTA if you:
- Have no penalties for three tax years prior to the return that you received a penalty for.
- Did not previously have to file a return.
- Have filed all current tax returns or filed an extension of time to file.
- Have arranged to pay all taxes that are due.
Third: What is a Statutory Exception?
A statutory exception is for those who have asked for advice from the IRS and received and acted upon that incorrect information. Consequently, if you have received a penalty due to misleading information from the IRS, the IRS will request certain information to determine if you are eligible for this type of waiver.
The IRS requires these elements for you to be eligible for this type of relief:
- Your written request to the IRS for advice
- The incorrect advice given to you by the IRS
- The report of the penalty and items related to the incorrect advice
What About the Interest Caused By the Penalties?
In addition, any interest charged because of the penalties due to incorrect information by the IRS will be reduced or removed by them. To clarify, the IRS does not penalize taxpayers for incorrect information given by them.
If the IRS is about to assess penalties against you, you may be eligible for one of these penalty relief options from the IRS. Speaking to a tax professional about your options is the best line of defense. Give us a call today and we can help you decide which type of penalty relief best suits your situation. Visit our IRS problem resolution services page for more information.