The IRS understands that taxpayers make mistakes, sometimes for reasons beyond their control. So, it is often possible to abate taxes, penalties and/or interest you owe to the IRS. Although, it is not an easy process.
IRS penalty abatement is a reduction or removal of the taxes, penalties and/or interest assessed by the IRS. The IRS imposes penalties for a variety of reasons, the most common penalties are for failure-to-file and failure-to-pay. Generally, failure-to-file penalties are higher than failure-to-pay penalties. So, you should ALWAYS file your taxes on time if at all possible. Failure-to-pay penalties can be five percent of the unpaid taxes FOR EACH MONTH or part of the month the return is late – not to exceed twenty-five percent of the unpaid tax.
Generally there are five reasons the IRS will agree to abate penalties:
- Written advice from the IRS – The IRS is required to abate any portion of any penalty attributable to bad written advice furnished by the IRS;
- Oral advice from the IRS – The IRS MAY abate any portion of any penalty attributable to bad oral advice furnished by the IRS “when appropriate”;
- Advice from Tax Adviser – Relying on the advice of a tax professional generally falls under the “Reasonable Cause” exception;
- Fire, Casualty, Natural Disaster, or Other Disturbance – penalty relief is available for circumstances that fall under the “major disaster” category (e.g. hurricane, tornado, earthquake, etc.).
- Official Disaster Area – If a significant disaster occurs, the IRS often issues specific instructions to facilitate penalty relief.
Requesting an abatement can be accomplished in three ways.
- Written Petition;
- Oral Request;
- Form 843
Generally, the burden rests with the taxpayer to prove they are entitled to abatement. If the taxpayer provides an explanation as to why tax. penalties and or interest should be waived (abated), the tax, penalties and/or interest should be waived, but only to the extent the explanation explains each tax, penalty and/or interest.