Penalty Abatement - In Some Cases The IRS Will Reduce Or Eliminate A Taxpayer's Penalties On Their Debt.
Reduce The Amount You Owe The IRS With Penalty Abatement
Owing the IRS is no fun, and no laughing matter. The stress it can cause will surely weigh heavy on anyone, and sometimes escaping the burden of debt will seem like too much to deal with.
However, no matter what your specific situation may be it's important to remember that there are options out there that can help anyone manage and overcome their IRS debt. Despite their 'boogeyman' reputation, the IRS has different programs and initiatives in effect that are designed to do just that, and penalty abatement is one option worth considering.
Essentially, penalty abatement is when the IRS reduces or even eliminates the penalties associated with a taxpayer debt.
They won't eliminate or reduce the actual debt, but by removing the various penalties it often makes it easier to manage and pay off that debt. As long as reasonable cause can be shown, the IRS will likely consider allowing the penalty abatement to be applied to their account.
The IRS penalty abatement waiver was created more than a decade ago in an effort to help taxpayers and covered under section 6404 of the USC. The reasoning was simple – the penalties applied to a taxpayer's debt aren't there to generate revenue for the government but are in place instead to help deter nonpayment of taxes. To understand just how important and how effective the penalty abatement can be, looking closer at the penalties themselves is worth doing. Here are a few figures that highlight the kind of impact those penalties can have on a taxpayer.
• A total of 37.9 million penalties were assessed against taxpayers in the 2012 fiscal year.
• Those penalties totaled $26.8 billion dollars
• Of the penalties, 74% were applied due to failure to pay, failure to file, or failure to deposit tax payments
• Penalties are assessed automatically with no regard to specific situations
Obviously, these penalties can have a big impact on the ability to pay back taxes. They can reach very significant amounts and as a result will make it even harder to come up with the money needed to fully pay off the tax debt that is causing so much stress in one's life. The penalty abatement process can help. Average abatements for 2010 were roughly $240, but surprisingly enough, about 90% of those eligible for the abatement didn't even attempt to receive it, most likely because they didn't realize it was an option.
It's worth noting that not everyone will qualify for penalty abatement. It's often referred to as the first time penalty abatement due to the fact that if you've requested it before, you likely won't' qualify again for quite some time. Also, the first time penalty abatement waiver is only applied to penalties over a single tax period. This means that it will only be used for one single year of individual taxes or one quarter of payroll taxes. Business taxes will fall under the one year umbrella as well.
To receive the penalty abatement, an individual needs to complete Form 843. This is a request for abatement of interest and penalties and is a fairly straightforward document that resembles standard tax forms that so many of us are familiar with. However, before filling out the form there are a couple of other steps worth taking.
First, you'll want to understand just what penalties are actually eligible for penalty abatement.
Not all cases will allow the abatement to be used. The following guidelines will help make it easier to determine whether or not abatement is an option.
• Failure to file or failure to pay penalties can be waived through penalty abatement, whether it is a business, individual, or payroll taxpayer
• In some cases partnerships or corporations may be approved for late filing penalties to be waived as well
• Estate or gift tax returns don't qualify and penalties associated with them won't be allowed
• Estimated tax and accuracy related penalties won't be approved for penalty abatement either
Once that it's determined whether or not the penalties themselves are accepted under penalty abatement provisions, the next step is figuring out if you're actually qualified to receive the abatement as well. As mentioned above, not everyone will be approved for the abatement and as a result you'll need to make sure you fit the eligibility requirements. It's often referred to as 'clean compliance criteria, and a few different guidelines are in place regarding it.
• Anyone applying for penalty abatement must have a clean penalty history over the last three years. This includes total payment and filling compliance over three years prior, and no penalties applied to their account.
• The person attempting to receive penalty abatement must also have taken steps to pay taxes due. The taxes may have already been paid or could have an installment plan in place to pay off taxes.
• The taxpayer also cannot have received penalty abatement over three years prior to the year they are currently requesting abatement for.
In other words, in order to receive penalty abatement, you'll have to have had no tax related penalties and have filed and paid all taxes properly over the prior three years, plus be taking steps to pay off the taxes you owe.
The process of requesting penalty abatement is fairly simple, but can sometimes be confusing. In most cases it's better to get help from a tax attorney who will understand the process fully and can guide you through it. Either way, it's worth taking a closer look at the basic process.
Form 843, as mentioned above, is the primary method used to begin the process of requesting penalty abatement. All information will need to be provided accurately and in full, and then the form will need to be submitted to the IRS.
While this is technically the only real step that is required, most tax lawyers will be able to provide additional help. One big one is the listing of any penalty relief arguments that can help to increase one's chances of eliminating their penalty. Things like reasonable cause arguments are always important to list, and doing so in a clear manner along with submitting form 843 will help one qualify for the abatement.
Tax professionals can also utilize call in or electronic requests as well. There is an Electronic Account Resolution process on the IRS website that allows users to file for a first time abatement online, and the IRS Practitioner Priority Service line may also be used by those with authorization to do so. IRS representatives who are contacted through these methods are fully qualified to grant first time abatements.
If you're facing tax debt and aren't sure what to do, contacting Attorney Mary King can help. Since 1996, Mary King has been providing her clients with top level tax representation and today she serves the Sarasota area and all of Florida with pride. Your case won't get passed off to a paralegal and will actually be handled by a real attorney who isn't afraid to go to trial for you.
You'll be able to figure out if you qualify for abatement, learn more about other tax relief options, and decide what steps you need to take next to escape from tax debt. Don't hesitate to contact us today for a free initial consultation.