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When Is Tax Penalty Abatement Available for Taxpayers?

Posted on in Taxation Law

california tax lawyerWhile nearly everyone in the United States is required to pay taxes, many taxpayers struggle to do so. The U.S. Tax Code is complicated, and it can be easy for a person or business to make mistakes. A taxpayer may also encounter financial difficulties that affect their ability to make payments to the IRS. Because of these issues, there are a variety of reasons why a taxpayer may be subject to penalties, which can make their tax burden even more difficult. Fortunately, the IRS provides different forms of penalty abatement in certain situations. By working with an attorney who is experienced in addressing tax penalties, taxpayers can request abatement and find ways to resolve their tax issues as quickly and affordably as possible.

Abatement for IRS Tax Penalties

The IRS most commonly imposes failure-to-file (FTF) penalties for those who do not file a tax return or extension by the due date or failure-to-pay (FTP) penalties for those who do not pay the taxes owed in full when they are due. Taxpayers may qualify for relief from these penalties in certain circumstances, and they will usually need to show that they failed to meet the IRS’s requirements based on factors that were out of their control. The type of penalty abatement that may be available include:

  • First-time penalty abatement - While the name of this form of relief may seem to indicate that it is only available to a taxpayer once, it is actually available any time a taxpayer did not have any penalties in the previous 3 years before the tax year in which they were subject to a penalty. To qualify, a taxpayer will need to file all returns that are currently required or file an extension, and they must pay or make arrangements to pay all taxes that are currently due. If penalties are reduced or eliminated, interest that was charged on these penalties will also be removed or reduced.

  • Reasonable cause abatement - A taxpayer may receive relief from penalties if circumstances out of their control made it difficult or impossible to file tax returns or pay taxes. These circumstances typically include natural disasters, fires, serious illnesses, the death of a family member, or an inability to obtain the necessary records even after following ordinary and prudent business practices. Notably since the COVID-19 pandemic has been declared a national emergency, those who have been affected may qualify for tax penalty relief due to reasonable cause. A taxpayer will need to provide the IRS with details about the facts and circumstances that prevented them from meeting their requirements, including all relevant documentation, such as medical records or evidence of natural disasters. 

  • Administrative relief - If a taxpayer contacted the IRS about their circumstances and received oral advice from IRS personnel that was incorrect, they may qualify for relief from any penalties that resulted from following this advice.

  • Statutory exception abatement - In certain circumstances, tax laws provide exceptions to penalties. These exceptions usually apply in situations where a person contacted the IRS and received written advice from IRS personnel that was incorrect. In these cases, a taxpayer can file Form 843 (Claim for Refund and Request for Abatement) along with supporting documentation identifying the erroneous advice and the resulting penalties or taxes owed.

Contact Our San Jose, CA Tax Penalty Abatement Attorney

If you have been contacted by the IRS and notified of tax penalties, John D. Teter Law Offices can help you determine whether you qualify for penalty abatement. We will help you provide the correct information to the IRS to ensure that you can receive relief from these penalties. Contact our San Jose tax lawyer at 408-866-1810 to get legal help with IRS penalties or other related issues.

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penalty-abatement-or-other-administrative-waiver

https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-reasonable-cause

https://www.journalofaccountancy.com/issues/2021/feb/tax-penalty-relief-amid-coronavirus-pandemic.html

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