The IRS charges penalties for a variety of reasons. The most common are for failing to file or pay taxes on time. If you owe taxes, penalties and interest can quickly add up, making it difficult to get out of tax debt. Thankfully, the IRS does provide three types of penalty relief.
IRS First-Time Penalty Abatement
Many taxpayers are eligible to receive first-time penalty abatement but fail to request it. If you’ve been hit with a failure-to-file or failure-to-pay penalty, you may be eligible for this type of penalty relief. To qualify, you must meet all of the following conditions:
You have filed all required tax returns (or filed for an extension);
You have paid all taxes due or made arrangements to pay them; and
You’ve had no penalties assessed within the three years preceding the tax year you received the penalty.
Businesses may also request first-time penalty abatement for failure-to-deposit penalties.
The IRS may offer relief from penalties under reasonable cause if there is a sound reason why you were unable to file, make a deposit, or pay your taxes on time. Situations that generally fall under reasonable cause include:
Natural disasters (fire, flood, hurricanes, etc.)
Serious illness or death (immediate family or self)
Other reasons may be considered if you can establish that your used ordinary business care and prudence to meet your tax obligations, but were unable to do so.
You may qualify for penalty relief under certain statutory exceptions, including:
Receiving incorrect written advice from the IRS for which you relied upon.
Living in a federal disaster area.
Mailing your return or payment on time (postal or e-file) but still being penalized.
If you serve in a military combat zone, you may also qualify for a statutory exception.
IRS Penalties Eligible For Relief
There are several IRS penalties eligible for relief, including:
Failure-to-File (FTF) Penalty. The IRS may offer first-time penalty abatement if you have a good record with the IRS and have previously met your tax obligations. The penalty may also be waived or reduced for reasonable cause or statutory exception, if applicable.
Failure-to-Pay (FTP) Penalty. If you did not pay your taxes on time, you may be able to have the penalty waived or reduced for reasonable cause, first-time penalty abatement, or statutory exception.
Accuracy-Related Penalties. An accuracy-related penalty typically applies when you underreport income or claim deductions or credits you aren’t eligible to receive. Penalty fees may be waived or reduced if you acted in good faith or show reasonable cause why you made the error.
Failure-to-Deposit Penalty. Employers who do not file their employment taxes on time or in the correct amount may qualify for relief if they can prove reasonable cause. In certain cases, they may also be eligible for first-time penalty abatement.
Underpayment of Estimated Tax. If an individual or business does not pay enough estimated tax on their income or pays it late, they may qualify for penalty relief in limited circumstances.
Dishonored Check. If your check bounces or your electronic payment is rejected, the penalty may be removed if there is reasonable cause.
If you’ve always been in good standing with the IRS and this is your first time receiving an FTF or FTP penalty, first-time penalty abatement is generally the best course of action.
How to Request IRS Penalty Abatement
You must submit your penalty abatement request within three years of the date you filed your return or two years after you paid the penalty, whichever is earlier.
For first-time penalty abatement (FTA) requests, call the IRS. If you have an FTP penalty and are seeking FTA, it may be beneficial to wait until your taxes are paid in full. Upon final payment of your taxes and penalties, you can then file Form 843, Claim for Refund and Request for Abatement.
Keep in mind that FTA only applies to one tax year. If you have penalties from two or more tax years, you’ll need to request relief under other options (reasonable cause or statutory exception) for the subsequent years.
To request relief due to reasonable cause, use Form 843. Requests made by phone are rarely approved. Make sure you provide sufficient evidence to support your claims, such as medical or court records, proof of a natural disaster, and a letter detailing the facts and circumstances that made it impossible for you to file or pay on time.
For relief under a statutory exception, it’s best to file Form 843. If you are claiming you received incorrect written advice from the IRS, you’ll need to provide a copy of the advice received and an explanation of how you relied on the advice. Evidence may also include an examination report or any letters you received from the IRS.
Be sure to follow up with the IRS to ensure they receive your abatement request. If they don’t have a record of it, you will need to file again.
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Common Questions About Penalty Abatement
Q:Can I appeal if the IRS denies my penalty abatement request?
Yes! If the IRS rejected your abatement request, you may be able to file an appeal within 30 days from the date of the rejection letter if all of the following occurred:
You received a notice that you were assessed penalties;
You sent a written request for penalty relief;
The IRS denied your penalty abatement request; and
You received a letter notifying you of the denial and included your appeal rights.
Q:Can I request first-time penalty abatement for more than one tax year?
No. You can only claim first-time penalty abatement (FTA) for one tax period.
Q:Can I request abatement of my interest fees, too?
If any of your penalties are reduced or removed, the interest fees associated with those penalties will also be reduced or removed.
Q:Do I need to hire a tax professional if I want to request penalty relief?
No. Any taxpayer may call or write (Form 843) to the IRS to request penalty abatement. Although a tax professional is not required, they can help determine which type of penalty relief is more likely to get approved and assist with submitting the proper documentation to prove your claim.
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