The Internal Revenue Service (IRS) has a program allowing taxpayers to request relief from certain penalties. This program is known as the Penalty Abatement. The IRS will consider Relief from Penalties under certain conditions and certain types of penalties, including failure-to-file, failure-to-pay, and accuracy-related penalties.
Whether you qualify for Penalty Abatement will depend on factors, including your reason for failing to meet the tax obligations and your particular circumstances. The following seven criteria can be used in determining whether or not you may qualify for Penalty Abatement:
1. Reasonable Effort
You made a reasonable effort to comply with the tax laws but were unable to meet the obligation due to circumstances beyond your control.
2. Significant Taxpayer Error
You made an error in filing, calculating, or paying taxes due and this mistake led to the penalty. When the error is significant, relief may be granted. The error must be an isolated incident; repeat errors will not qualify.
3. Statutory Exceptions
You are eligible for a statutory exception that waives your penalty liability. When filing your taxes, it is good to note which statutory exceptions are available for your specific situation. The IRS website has a list of statutory exceptions that you can use to determine if this exception applies to your situation.
4. First Time Penalty Abatement
This applies to those who have not incurred any penalties in the three tax years prior to the tax for which they are requesting relief. The IRS will waive the penalties if you can show reasonable cause.
5. Reasonable Cause
You exercised ordinary care and prudence but were unable to comply due to circumstances beyond your control. The factors the IRS uses to determine if reasonable cause applies include, but are not limited to: death, serious illness, ignorance of the tax laws and inability to obtain necessary documents.
6. Administrative Waiver
The IRS may waive types of penalties due to a clerical or error. There may also be administrative waivers available if the taxpayer is able to provide proof that they were unaware of their filing or payment obligations.
7. Payer Advocate Service Intervention
You worked with the TAS office to resolve an issue and the proposed resolution includes abatement of the penalty. Where applicable, the IRS may consider penalty abatement with proof of TAS intervention.
If you believe your situation meets one or more of these criteria, you qualify for Penalty Abatement. To determine if you meet the qualifications and to understand what documentation may be required, please consult a tax professional. With the right information, understanding and preparation, you may be able to successfully petition for Relief from Penalties with the IRS.