IRS Penalty Relief
If you fail to file a tax return, fail to pay on time, or fail to deposit taxes when due, the Internal Revenue Service (IRS) will charge penalties to encourage voluntary compliance. It is for that reason that the IRS penalties can be excessive. For example, the IRS penalty for filing your tax return late or paying IRS taxes late can be up to 25%. For example, if you owe $10,000 in taxes from four years ago, the IRS fines or penalties could be $5,000. Interest also accrues on top of the penalties, so your total tax balance of $10,000 would have nearly doubled with interest and IRS fines over four years.
However, you can apply for IRS Penalty Relief if you fit the taxpayer criteria. In certain situations, the IRS will remove penalties if there is reasonable cause to grant relief. According to the IRS Internal Revenue Manual, “Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining their tax obligations but nevertheless failed to comply with those obligations.”
If you do not have reasonable cause for IRS Penalties Relief, you may qualify for First-Time IRS Tax Penalty Abatement.
Three Ways to Request IRS Penalty Relief
1) Prepare and mail a letter
2) Prepare and file Form 843, Claim for Refund and Request for Abatement
3) Request penalty relief over the phone with the IRS
There are three different methods to request IRS Penalty Relief: by mail, with Form 843, or by phone. Each method requires 5 steps in order to find if your request for relief has been approved or denied. In the ALG Tax Solutions Comprehensive IRS Penalty Relief eBook available for FREE download below, you’ll find a step-by-step process for how to request penalty relief. In the eBook, we outline each step and exactly what you need to do to be successful in your request for penalty relief. Just fill out the short form below to download your IRS Penalty Relief guide.
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5 Steps To IRS Penalty Relief
Understand your options and learn step-by-step how to request tax penalty relief.
Seven Reasons to Waive IRS Penalties
When applying for IRS Penalty Relief, the IRS will review the facts and circumstances of your case. If your situation falls into one of the set categories for reasonable cause, the IRS may waive penalties by providing penalty relief.
Reason 1: Death, Serious Illness, or Unavoidable Absence
- Your spouse became seriously ill. Your spouse took care of the taxes. You did not file on time because you had to attend to your spouse.
- You had a major drug problem. You were in rehab for a couple of years. As soon as you were clean, you started to address your tax duties.
- Your child passed away. Physically and mentally you could not take care of your taxes.
- You were incarcerated. You promptly addressed your tax duties when you got out.
Reason 2: Fire, Casualty, Natural Disaster, or Other Disturbance
- Your neighborhood was hit by a hurricane, tornado, or earthquake.
- Your office caught on fire and destroyed all your business records.
- There was a major flood in your area and your home was seriously damaged. You had to take care of your living situation before dealing with taxes.
Reason 3: Unable to Obtain Records
- Your employer was late on providing you a W-2. The W-2 was received after the tax return was due.
Reason 4: Mistake Was Made
- Your tax return was filed. You discovered a mistake made on the tax return. You took steps to correct the mistake.
Reason 5: Erroneous Advice or Reliance
- Generally, you will not be granted penalty relief for relying on your accountant, CPA, bookkeeper, bank, or any other third party.
- The IRS may waive IRS penalties for oral or written advice provided by the IRS.
Reason 6: Ignorance of the Law
- You did not know you had to file a tax return.
- You earned Social Security income for years. You were not required to file a tax return. This year your spouse passed away. You started to receive your spouse’s pension. You are now required to file a tax return but you did not know it.
Reason 7: Hardship
- You can show that there would be substantial financial loss if you paid your taxes.
- You filed bankruptcy when the taxes were due.