Reduce Your Tax Debt by Reducing Your Tax Penalties
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Does that sound familiar? Do you qualify for penalty abatement?
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Penalty abatement can significantly reduce your tax debt sometimes by half!
How Does Penalty Abatement Work?
The most common IRS penalty relief program used is called "Reasonable Cause". The Internal Revenue Manual gives the following "definition":
"Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations."
Essentially, this means something beyond the control of the taxpayer has occurred that has caused you not to file or pay your taxes timely. It also must be demonstrated that you (the taxpayer) took reasonable steps to "counter" the events and were still unable to pay and or file timely.
Although many of these circumstance evoke great "empathy when heard, sympathy is obviously not going to cause the IRS to abate your penalties. The case for abatement must be supported with logical and or legal arguments, and round it off by tying everything together relevantly.
Additionally, each case is weighed on its individual merits not on precedents of other cases
No precedence can be cited on penalty abatements.
What Does the IRS Consider Reasonable Cause?
The IRS gives a long list of events that will be considered for reasonable cause. They are:
- Ignorance of the Law (you must demonstrate you made a reasonable effort to learn the law though)
- Error or Mistake was Made, but you must still show "due diligence, ordinary business care and prudence" have been exercised.
- Forgetfulness, but you must still show "ordinary business care and prudence"
- Serious Illness, Death, or Unavoidable Absence
- Unable to Obtain Records
- Incorrect Advice from a competent tax professional
- Incorrect advice directly from the IRS, written or oral.
- Fire, Casualty, Natural Disaster, Other Disturbance
- Acts of God
The Internal Revenue Manual goes on to say that any reason will be accepted as reasonable cause if it can be shown that the taxpayer exercised ordinary business care and prudence and, despite that, was still not able to comply with their tax obligations.
The following list is taken from the IRM or Internal Revenue Manual that gives the guidelines of what IRS agents are instructed to look at when considering penalty abatement:
- What are the events that happened, when did it happen, and why did these events prevent you from complying with the tax law?
- How were your other affairs handled during this time? Did the you (or does it appear) single out the IRS not to be but paid other creditors? What steps were taken to try and mitigate your circumstances? Ordinary business care and prudence is closely looked at here.
- Is there a direct "timeline" correlation between what happened and the taxes being file late or not paid?
- Is there a history of filing and or paying late? The IRS is going to look at your history; repeat offenders, have a tougher job convincing the IRS that this was not intentional.
- Were the circumstances "beyond the control of the taxpayer" truly unavoidable, and could not be anticipated? If so, this generally establishes reasonable cause.
- Documentation will be the bulwark of your case. Provide as much proof of what you are arguing as possible. The "third party" evidence you produce the better the chances for relief.
Submitting a penalty abatement request
This is the actual process of requesting penalty abatement.
The IRS gives three ways to request an Abatement of Penalties:
- A written petition, which is the most common method and goes directly to an appeals officer generally) who has a larger scope.
- Verbally in person or over the telephone
- IRS Form 843 - Usually a Form 843 is filed with a written "brief" or petition
Typically, a petition will comprise of a formally structured letter with an introduction, the request for penalty relief under which relief program(s).
This would be followed by a Statement of the facts surrounding the case demonstrating the "reasonable cause" and " ordinary business care" and as much third party documentation of the facts.
Finally any legal or code related facts that would bolster your claim. (But remember this is not a court case so there are no precedents)
If you submit a Penalty Abatement request and it is denied, you cannot make a request on the same grounds again. Therefore it is very important that you put forth the best case possible when you submit. This is why we higher recommend professional representation.