IRS Tax Penalties: 10 Secrets to Say Goodbye
Per the Tax Code, a taxpayer can request the removal (abatement) of IRS penalties under two provisions: the First Time Abatement and the Reasonable Cause Argument.
The First Time Abatement is secret No. 1. Here’s how it works:
- Generally applies to personal income (Form 1040) back taxes.
- One-time consideration is available only for taxpayers with a “clean” compliance history.
- Only requested for one period.
- Lastly, You must be in what the IRS calls “current compliance.”
Equally important, there are nine other ways to get IRS penalties removed. These fall under the Reasonable Cause Arguments. They break down as follows:
- Death, Serious Illness, Unavoidable Absence
- Fire, Casualty, Natural Disaster
- Unable to Obtain Records.
- Mistake Made
- Erroneous Advice or Reliance
- Written/Oral Advice From the IRS
- Ignorance of Tax Laws
- Reasonable Cause/Ordinary Business Care and Prudence
- Undue Economic Hardship
In addition, The request for a penalty abatement under the Reasonable Cause provision must be in writing. Also, the timing of the event must correlate to the tax years involved, and you must include supporting documentation to substantiate your claims. Furthermore, the entire abatement request package is prepared in such a way to meet IRS policy and procedure criteria to prevent outright rejected and returned.
In other words, here’s a closer look:
First, Death, Serious Illness, or Unavoidable Absence Considerations:
- Immediate family only.
- Issues are addressed in a reasonable time after death/illness.
- Other obligations impaired or just taxes?
- Written proof of illness/death.
- For example, terminal illness, surgery, substance/physical abuse, depression, disability, and emotional/psychological distress.
Second, Fire, Casualty, Natural Disaster Considerations:
- Steps you took to comply?
- Did you comply as soon as it was possible?
- Specifically, major disasters include hurricane, tornado, earthquake, flood, riot, or other “emergency” events.
Third, Unable to Obtain Records Considerations:
- Why were the records unavailable?
- Records needed to comply, for what reason?
- When and how did you become aware that you did not have the necessary records?
- What other means explored to secure the information?
- Why didn’t you estimate the information?
- Did you promptly comply once the missing information was obtained?
Finally, if you want to know more about the Reasonable Cause Arguments? You can find No. 4–9 by heading to LandmarkTaxGroup.com/Penalty. There, you will find our Special Report detailing how you can get your penalties removed!