What is Tax Penalty Abatement?
The interest may not be very high, but will accrue at a considerable rate and can increase your liability in general which will make it tougher to pay back to the IRS.
In case you have a very big amount of unpaid taxes and what you had to pay originally was much less than at present, then it is a good option of seeking tax relief by way of penalty abatement
What this means is that you as the taxpayer can get a total or part forgiveness of the money you owe to the IRS. And there are actually a number of cases where the IRS removes 100% of the penalty.
The IRS makes decisions on case to case basis, and this is very heartening as the reasonable cause can be anything as long as you can convince them of your inability to pay the tax and it also depends on your circumstances.
In fact, IRS guidelines generously suggest that abatement should be "generally granted when the taxpayer exercises ordinary business care and prudence" in trying to pay their taxes.
Penalty abatement is a very good chance for you to put forward your case to the IRS. Penalty abatement unlike other tax relief claims presents a human face of your case and that surely helps things going in your favor.
It is even possible that the IRS gives back the penalties which you have already paid to them on your tax defaults.
Penalty abatement gives an opportunity to a taxpayer to reduce the levied interest and penalties for some reasons as mentioned below.
- Reasonable cause is a very considerate clause by the IRS. In case you were conscious of tax laws, someone passed away in the family, you have been suffering from a serious ailment and could not do the needful then you can be eligible for penalty abatement.
- The other reason why you can ask for penalty abatement is administrative waivers. In case of some untoward adversity like natural disaster, bad advice from a tax professional, new to tax filing, mental problems, being unemployed for a long time, misplacing financial records or any other such problems.
- Another important reason for asking for this tax relief is when there has been a mistake from the side of the IRS in assessing your case or there was some wrong advice given by them when you filed your taxes.
There are three ways to present a case for abatement; written, verbal and through Form 843. The choice is yours but it is imperative to clarify your reason for asking penalty abatement and also explain how difficult it was for you to pay the tax dues. One can't be sure of the result of your appeal, but you have better chances of abatement if your reasons are convincing enough.
You should be prepared for tough questioning from the IRS even if you have stated your case very well. Present your case forcefully and be persuasive and you may have a good chance of being granted penalty abatement.