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What are the Qualifying Criteria for Penalty Abatement?

October 10, 2013

The IRS abates the entire or a portion of an IRS penalty under certain special circumstances. Some of the qualifying criteria of the IRS are systemic while others fit the reasonable cause criteria. It is in cases that do not fit the systemic penalty relief that taxpayers can explore the reasonable cause standards for relief from penalty.

The systemic penalty relief criteria 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. The taxpayer is responsible for filing and paying taxes. Such responsibilities cannot be shifted to a tax advisor.
  • Fire, casualty, natural disaster, or other disturbances, which were beyond the control of the taxpayer and could not be predicted. The IRS reviews the facts and circumstances of each individual case before granting relief from penalty.
  • An official disaster area where the IRS has issued special instructions for a limited period of time. It often includes penalty abatement.
  • An IRS error in computing or assessing tax that led to the penalty.

Taxpayers can also seek relief from penalty by presenting a reasonable cause for tax non-compliance such as late payment of taxes or tax debt. If taxpayers were not able to pay their full taxes owed on time due to reasons that were sudden and beyond their control, they can get IRS penalty abated.

According to the IRS, taxpayers “may still qualify for relief under reasonable cause if the IRS determines that the taxpayer exercised ordinary business care and prudence in relying on the IRS’s written advice.” If, in spite of that, taxpayers could not comply with the tax laws, the IRS considers either reducing or forgiving penalties.

Penalty Abatement can substantially reduce back taxes and help taxpayers comfortably pay it back. When seeking tax debt resolution, taxpayers should explore and make efforts to achieve relief from penalties to lighten their back tax burden.

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