What Is a Penalty Abatement?
Penalty abatement means that you may receive an administrative waiver for a penalty applied to you by the IRS. If you failed to file your tax return on time, did not make a payment, or encountered another tax filing error, you may be facing a penalty for the action. However, in select cases, the IRS may provide a penalty abatement, in which your penalty fees will be waived.
Many different events can lead to a penalty, and exploring all your options for administrative relief is vital. When you partner with CitoTax, we can identify the best opportunities to handle your penalty and work toward an abatement from the IRS.
Why Would You Have a Penalty Assessed?
You may have a penalty assessed for multiple reasons. In fact, the IRS has the ability to levy over 140 different penalties. While we always advise that you pay your taxes on time, if life throws you a curveball, you can file a Penalty Abatement Request. Many circumstances will fall under reasonable cause,
including:
- Death in the family
- Serious illness
- Inability to obtain records
- Incorrect advice from a tax adviser
- Fire, tornado, flooding, or other natural disasters
This is by no means an exhaustive list since any multitude of reasons could constitute a reasonable cause. Approximately one-third of all penalties imposed by the IRS are later decreased, meaning you might have more of a chance to have your penalties abated than you previously thought. While penalty relief does apply in many circumstances, you will not receive it automatically.
You’ve got to ask the IRS for it!
What Is the Purpose of Abatement?
Abatement can help you either reduce or eliminate the penalties imposed on you when you were unable to pay taxes. Most penalties are incurred on unintended infractions frequently caused by incorrect advice or financial constraints on the filer. The following three penalties make up a total of 77% of all IRS penalties, and the CitoTax team has the knowledge and experience to help you challenge them:
- Failure to pay penalty — 56%: This relatively common penalty is imposed on those who fail to pay their taxes before the annual deadline.
- Failure to file penalty — 14%: This applies to all who fail to file their taxes before the annual or quarterly deadline.
- Failure to deposit penalty — 7%: This penalty applies to businesses that have not paid employment taxes by the deadline or have filed them incorrectly.
- When you choose tax abatement solutions, you have the opportunity to avoid these penalties and move forward without further hassle from the IRS.
How Do You Qualify for Abatement?
Many taxpayers may qualify for a First Time Penalty Abatement if this is their first time with overdue taxes. This waiver helps those who have clean IRS compliance histories for the past three years but have accrued penalties due to failure to deposit, failure to file, or failure to pay. No matter how high your penalty
amount is, CitoTax can still help you file a First Time Penalty Abatement. If you do qualify for First Time Penalty Abatement (FTA), you may receive administrative relief for an otherwise applicable penalty due to a tax liability with the IRS. You may be eligible for abatement if you meet the following criteria:
- You have arranged to pay or have completed payments for any taxes due to the IRS.
- You have not needed to file a return or had no penalties for three tax years prior to the year you received a penalty.
- You correctly filed returns or filed for a time extension to complete returns.
- You received incorrect oral advice over the phone or in person from the IRS.
Until you pay the tax amount in full, your failure-to-pay penalty may continue to accrue. In some situations, paying the taxes owed before requesting first-time penalty relief may put you at an advantage for penalty abatement.
Best Practices for Tax Abatement
If you face a tax penalty, keep in mind some essential best practices to request abatement:
- Wait to pay the penalty: Your first step is to leave the penalty unpaid until you’ve explored all your options for abatement. Paying could appear to be an admission of liability, so hold off on that step.
- Always use FTA: If possible, always try a First Time Penalty Abatement first. Regardless of reasonable cause for a penalty, taxpayers without previous liabilities can use this abatement policy. You can make your FTA request by phone.
- Request reasonable cause in writing: To get documentation of reasonable cause, ensure you get the information in writing and not simply over the phone. You may complete Form 843: Claim for Refund and Request for Abatement and include your reasoning for your reasonable cause request.
- Appeal adverse rulings: Often, the IRS penalty may not evaluate the taxpayers’ entire financial situation. A reasonable cause request may be rejected, but you may be able to prove that you are justified with further review with a live person.
- Include the right information: When you fill out your reasonable cause abatement request, ensure you establish circumstances outside your control that caused noncompliance, and furnish proof that this event affected your life in other ways as well. For instance, if you experienced an unexpected illness, provide a doctor’s note and demonstrate you were also not able to work.
- Demonstrate prior compliance: Provide evidence that you have a history of compliance and emphasize a positive compliance record to help gain favor for your current return.
- Follow up on abatement requests: Requests are sometimes lost within the IRS, so ensure you track yours and check if the agency is actively working on your submission.
As you begin the process, the most crucial step you can take is getting skilled assistance to help you navigate complex requirements. When you work with CitoTax, we’ll handle legal issues and communicate with the IRS to help you get a swift resolution.