Question: I received a notice from the IRS because I did not have the funds to pay the taxes I owed on my 2016 income tax return. I also was late in filing my tax return. Not only is the IRS demanding the tax I owe, but they have slapped on these huge amounts for penalties and interest. I had extenuating circumstances that caused all of this. This isn’t fair…what can I do?
Answer: Your Tax Resolution Specialist can request a removal (abatement) of penalties 2 ways: 1) “First Time” Penalty Abatement and 2) a Reasonable Cause Argument. The IRS writes off billions of dollars in penalties each and every year, but you must know how to do it correctly.
A First Time Penalty Abatement (FTPA) can be requested if you have a “clean” compliance record, meaning you have not incurred a Failure to File or Failure to Pay penalty for the 3 years preceding the year you are requesting the first time penalty abatement on. FTBA is generally granted in most cases, regardless of what the underlying reason is, if you are eligible.
There are 9 main “Reasonable Cause” arguments to get your penalties removed. They are: 1) Death, Serious Illness or Unavoidable Absence 2) Fire, Casualty or Natural Disaster 3) Unable to Obtain Records (common issue with couples going through a divorce) 4) Mistake was made by the taxpayer or tax preparer 5) Erroneous Advice or Reliance on a tax preparer 6) Written/Oral Advice from the IRS 7) Ignorance of Tax Laws 8) Reasonable Cause/Ordinary Business Care and Prudence 9) Undue Economic Hardship.
When using a “Reasonable Cause” argument, the event that caused you to file late or prevented you from paying the tax when due must correlate to the tax years involved and supporting documentation is essential. Your Tax Resolution Specialist will guide through which documents are needed and submit a formal request in writing. For instance, let’s say you were going through a divorce and you ex-spouse withheld records from you needed to file a complete and accurate income tax return and you filed your return last because of this. You could request abatement of these penalties using one of the above reasonable cause arguments, specifically #3 above.