What is Penalty Abatement?
The IRS can eliminate or reduce a penalty for a reasonable cause if you request it. The term the IRS uses for wiping out a penalty is called an abatement.
Abatement requests can be granted at any IRS level – IRS campus, automated collection system, or personnel at local IRS offices. However, local IRS offices can only grant abatements up to $100. Anyone can request a penalty abatement for free.
What Is Reasonable Cause for a Penalty Abatement?
A reasonable cause is determined by the IRS. Here are some examples of reasonable cause according to the IRS Policy Statement P-2-7:
- Death or serious illness of the taxpayer or…immediate family. In the case of a corporation, estate, [or] trust…death or serious illness must have been of an individual having sole authority to execute the return or make the deposit or payment.
- Unavoidable absence of the taxpayer.
- Destruction by fire or other casualty of the taxpayer’s place of business or records.
- Taxpayer was unable to determine amount of deposit of tax due for reasons beyond taxpayer’s control.
- Taxpayer’s ability to make deposits or payments has been materially impaired by civil disturbances.
- Lack of funds is an acceptable reasonable cause for failure to pay any tax or make a deposit…only when a taxpayer can demonstrate the lack of funds occurred despite the exercise of ordinary business care and prudence.
- Other explanations may be acceptable…Acceptable explanations of delinquency are not limited…Any reason…established that the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time will be accepted as reasonable cause.
Practical Suggestion: If possible, choose one or more of the first six items when requesting a penalty abatement. Also, mention Number 7, that you’re acting with “ordinary business care and prudence” but still couldn’t file or pay your taxes on time.
How to Request a Penalty Abatement?
Practical Suggestion: When mailing the form, also include as much supporting evidence as you can including but not limited to doctor’s statement, fire department report, insurance claim, or death certificate of a family member. We also recommend including a letter with your Form 843 explaining your situation and explaining any additional documents.
What if You Get Denied?
Denials happen. The best thing to do if you do get denied a penalty abatement is to appeal the decision by mailing a Letter of Appeal immediately after the news of a denial. If you do get denied, you’re more than welcome to reach out to TaxRise, and we’ll be able to build a professional and strong case against the IRS for your tax liability.
If you have any questions about submitting a request for a Penalty Abatement, call 833-596-1375 to speak with a certified tax specialist.
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