Penalty abatement can significantly reduce back taxes and help taxpayers comfortably pay it back. Almost anyone can qualify for a penalty abatement; it’s the circumstances that determine if you qualify. If you meet these special circumstances, the IRS may abate the entire portion or a partial portion of an IRS penalty.
Some of the qualifying criteria of the IRS are systemic in nature, while others require a reasonable cause criteria. In order for penalty abatement to be accepted, it must be determined that the events that prevented the taxpayer from being compliant with tax laws were beyond their control.
The most common systemic penalty relief criteria used by the IRS include:
- Erroneous written advice by an officer or employee of the IRS acting in their official capacity.
- Erroneous oral advice from the IRS.
- Wrong advice from a tax advisor, noting that the taxpayer is responsible for filing and paying taxes and such responsibilities cannot be shifted to a tax advisor.
- Events such as fire, casualty, natural disaster, or other disturbances which were beyond the control of the taxpayer and could not be predicted. The IRS reviews each case individually.
- Official disaster areas where the IRS has issued special instructions for a limited period of time, which often includes penalty abatement.
- An IRS error in computing or assessing tax that led to the penalty.
In addition to the systemic penalty criteria, there’s reasonable cause. This refers to any excuse that you can prove to the IRS as completely legitimate for not being able to pay or file your taxes on time. Such causes typically involve situations that are beyond the taxpayer’s control. Examples given by the IRS for reasonable cause include:
- Death of a family member or someone very close to the taxpayer.
- Unavoidable absence of the taxpayer, such as being in rehab, prison, or held hostage in another country.
- Destruction of the taxpayer’s records due to fire, flood, or other casualties.
- A taxpayer’s ability to make deposits or payments being materially impaired by civil disturbances, like divorce.
- Taxpayer inability to determine the amount of tax deposit due to uncontrollable circumstances.
- Receiving incorrect advice from a tax professional or direct bad advice from the IRS.
- Errors that occurred when the taxpayer acted with “ordinary business care and prudence”.
Regardless of the reason provided, the IRS will scrutinize the situation to determine why the individual failed to comply with tax laws. Whether or not you meet the above criteria, it’s crucial to consult with a tax professional to enhance the likelihood of achieving a penalty abatement.
At Purple Pig, we specialize in such scenarios. Our expert team is poised to assist with all your tax relief needs. Contact us today.
