3 Things to Know About Getting a Penalty Abatement

Monday, December 7, 2020, 6:00 PM | Leave Comment

IRS penalties can pile up within a short time, and you find yourself in a huge debt.

The penalties result from late or failure to file your tax returns. It can also result from the understatement of tax returns or an erroneous claim for refund or tax credit, and many others.

The penalties are payable upon notice and demand and are paid in the same manner as the tax.

The notice will contain the penalty name, the applicable code, and the format through which the penalty was computed.

This article will explore the meaning of penalty abatement, types of penalty abatement, requirements for qualification of penalty abatement, and everything you need to know about it.

What is the Penalty Abatement?

Penalty abatement is the removal of the penalties by the IRS. It is the process by which you are allowed by the IRS to evade the penalties levied against you for not filing or failing to pay tax. Before you settle the penalties, you should check whether you qualify for penalty abatement.

Abatement applies to the penalties only; it doesn’t include interest on unpaid taxes, the taxes, or processing fees.

The penalty assessed for failure to pay taxes accrues until they are fully paid.

Below are penalties that are eligible for relief or abatement:

  • Failure to deposit taxes

  • Failure to pay a penalty

  • Failure to file a tax return

Types of Penalty Abatement

There are three types of penalty abatement or relief, namely: First-time penalty abatement, Reasonable cause, Statutory Exception.

Each of them has its requirements. Let’s traverse each one of them below.

  1. First Time Penalty Abatement

    This is the most popular type of administrative waiver available where the IRS rewards e past compliance and promotes future compliance. The IRS may waive a penalty if it is their first time assessing you.

    However, to qualify for this type of abatement, you must possess the following qualities;

    • You should have had no other penalties in the previous three tax years before the tax year in which you received the penalty

    • You should have a history of filing and paying your taxes on time

    • You should have paid or arranged to pay any taxes due

    Any other penalty which is not in the above bracket, like estimated tax and accuracy penalties, do not qualify for first-time penalty abatement.

  2. Reasonable Cause

    This system is based on all the facts and circumstances in your situation. IRS will consider all the justifiable causes in granting the penalty abatement.

    It will carry out the following investigations to determine whether or not you qualify for the penalty;

    • Death, serious illness, or any unavoidable absence or incapacitation of the taxpayer or an immediate family member of the taxpayer

    • Natural disasters such as fire and any other disturbances

    • Erroneous advice received from a staff that is considered competent

    • Held hostage in another country

    • Inability to obtain the record

    • Unable to determine the amount of tax for reasons beyond your control

    • Civil disturbances

    For any of the above reasons, you should provide documentation to support your claim.

    Besides, the lack of money will not be accepted, but the reason behind the claim for the lack of money is considered.

    If, in any case, you need help getting a penalty abatement, you can always find a seasoned lawyer who will stand in your position.

  3. Statutory Exception

    This system of penalty abatement applies where you receive incorrect written advice from an IRS staff.

    If you are assessed a penalty that resulted from erroneous advice that you received from the IRS, you should present the following items when requesting the abatement;

    • The erroneous written advice you received from IRS

    • A written request for advice

    • The report of the tax adjustment that identifies the penalty or addition to tax and the items relating to the erroneous information, if any

IRS follows strict criteria in offering penalty abatement or relief. They have different factors that they consider. Before you apply for it, you should do a precise examination to determine your penalty’s cause and determine if you qualify for it.

You should also make sure you possess all the required documents depending on the type of abatement you are applying to increase your qualification chances. Having proper documentation and the determination can see your wish granted. Finally, don’t always rush to pay your penalties; rather, confirm if you can qualify for abatement and save your money.

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