Penalty Abatement Overview
If you owe a significant amount in taxes because of penalties and interest, you can request a penalty abatement. To do this, you need to provide a valid reason for why you filed or paid late.
Lack of funds is not a valid reason alone, but the reasons behind it may meet the necessary criteria.
An Example of Penalty Abatement
When Erica’s husband died unexpectedly, she suddenly had many tasks to take care of. She had to alert his friends and family, let his employer know, call the funeral home, and order his casket. All this was in addition to dealing with her own grief.
While she focused on these tasks, she forgot to pay her taxes. In response, the IRS charged her a penalty. The penalty was 40% of the total amount owed. Erica’s compounding debt was beginning to feel insurmountable.
Unsure of what to do, Erica met with a licensed tax professional at Boxelder Consulting. We determined that her unique situation made her a likely candidate for a penalty abatement. We helped Erica fill out the required forms to explain her situation. As a result, the IRS decided to waive the fines.
This helped Erica lower her tax debt and make her payments easier to manage. It relieved her from financial stress and allowed her to focus on what was most important.
Penalty Abatement – Rules and Requirements
- To qualify for a penalty abatement, the taxpayer must submit Form 843 (Request for Abatement and Refund).
- The taxpayer must prove that they had reasonable cause for filing or paying late. The most common situations that fall under this category include:
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- Death or Illness: The IRS will consider penalty abatement if the taxpayer has experienced the recent loss of a family member, or is personally fighting a severe disease. But, the death or illness of friends or acquaintances is not grounds for penalty abatement.
- Fire, Casualty, or Natural Disaster: Should the taxpayer suffer a major event such as a house fire or a natural catastrophe (such as a hurricane, tornado, flood, or riot), they may qualify for a penalty abatement.
- Major Life Disruption: This is an unexpected event that causes financial hardship for the individual taxpayer. The IRS defines a major life disruption as such: It must lead to significant financial difficulties for the taxpayer. Major life disruptions include, but are not limited to: imprisonment, separation or divorce, a lengthy period of unemployment.
- IRS Error: Believe it or not, taxpayers know that the IRS makes mistakes from time to time. Taxpayers can apply for a penalty abatement if their liability is due to an IRS error. The same goes if the IRS is responsible for unnecessary delays during the taxpayer’s assessment.
- Whether or not the taxpayer has reasonable cause, if they have an otherwise clean track record of filing and paying their taxes on time, the IRS might consider a penalty abatement. The First Time Penalty Abatement (FTA) program is designed to make exceptions for first-time offenders.
Benefits of Penalty Abatement
The benefits of penalty abatement extend far beyond mere tax savings; abatement allows taxpayers to allocate their money towards more crucial financial needs.
Penalty abatement helps taxpayers by reducing or removing penalties, so they can focus on paying their original tax debts. This helps them regain financial stability and peace of mind.
At Boxelder Consulting, our main focus is to offer our clients efficient tax resolution strategies promptly. Our team of experienced tax professionals specializes in navigating the complexities of penalty abatement and can assist you in determining your eligibility for relief.
If you think you might qualify for penalty relief or need help with taxes, please contact us. We are here to help you with personalized guidance and support. No matter your tax situation, we can help you navigate the relevant tax laws and take control of your finances.
For more information on penalty abatement, feel free to give our team a call or visit the IRS website.