Penalty abatement is a form of tax debt relief you can avail to significantly reduce the total tax you owe to the IRS.
What is Penalty Abatement?
If you have a tax debt, the IRS will calculate penalties and interest on the amount owed. The penalties include a ‘failure to file’ penalty if you have failed to file your returns on time (including extensions), a ‘failure to pay’ penalty if the tax amount has not been paid in full and which is calculated on the basis of the amount you owe. These two penalties are charged on a monthly basis for the entire period until resolution. Further the IRS charges a daily interest on the tax amount you owe. All in all, the each penalty may contribute up to 25% of your total tax bill.
If your failure to pay taxes has been due to financial difficulties, such difficulties are further compounded by the penalties, which continuously keep adding to the total tax debt. So penalty abatement is an option you should definitely consider to achieve some degree of tax debt relief. As professional enrolled agent, Mike Habib can guide you in this matter if you do not feel confident enough to handle it on your own.
The Rationale Behind the Penalty Abatement Option
The penalty abatement option indicates a surprisingly human side of IRS you would not have believed existed. The IRS or its appeal officer wants to know the reasons you failed to file your returns or pay the tax and if the IRS finds that these reasons were truly beyond your control, they may abate penalties. Naturally, the IRS will not take your word for it (they never do) and you need to have sufficient documentary support that proves your reasons. Also the burden of proof is on you to show that you exercised “ordinary business care and prudence”, but failed to meet your tax obligations due to external issues beyond your control. Depending on your specific circumstances, the IRS or the appeal officer may approve penalty abatement in full or to a certain extent.
When is a Penalty Abatement Right for You?
You can request for penalty abatement if you failed to meet your tax obligations due to the following reasons
- Any family crisis, such as divorce or major illness of a close family member
- Death of close family member like parent, spouse or child
- Any event which caused your absence from active business life such as a personal illness or hospitalization, time spent in rehab or abroad due to compelling reasons.
- Destruction of tax records due to fire, flood or any other accidental or natural disasters.
- Incorrect advise from a tax professional or even an IRS agent
- Theft on premises and or embezzlement of funds that crippled the organization financially.
Each situation is different and it is possible that you may have another valid reason that qualifies you for penalty abatement, not listed here. As an experienced professional enrolled agent, Mike Habib can help you identify genuine causes and put them forth in the desired format to the IRS along with requisite evidence to secure highest possible penalty abatement.
How to File for IRS Penalty Abatement
i. Write a clear communication to the IRS or the appeal officer in response to the notice you have received listing the reasons why you feel you are not to be held responsible for the penalties and enclose appropriate supporting documents, while sending it to the IRS.
ii. Schedule a face to face meeting with the IRS, if you feel more comfortable with this approach.
iii. You can file for the penalty abatement by filling the IRS form 843.
iv. Retain us to carry out the abatement task for you and represent you before the IRS for securing penalty abatement.
And remember, if your penalty abatement request is accepted by the IRS, you may have to pay your actual tax liability in full.
If you want professional help to determine whether you qualify for penalty abatement and also to represent your case to the IRS, visit www.myirstaxrelief.com. Mike Habib, an IRS licensed enrolled agent and founder of our tax relief company will personally review your case and offer his input. Mike works specifically with individuals and small businesses to make sure that they get the maximum possible penalty abatement, which could considerably reduce their tax debt.