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IRS Penalty Abatement | Can I Reduce Or Remove IRS Penalties? | IRS Penalties Attorney May 14, 2012

Posted by Insight Law Firm in Income Tax, IRS, Tax.
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Why did the IRS issue me a penalty?
The IRS may impose penalties on taxpayers for several reasons.  Some of the more common penalties taxpayers face include:
  • Penalty for failure to timely file return.  The IRS may impose a penalty on you if you fail to file your tax return on or before the due date.  The amount imposed as a penalty will vary from taxpayer to taxpayer, because it is based on the amount of tax on your return and how late your taxes were filed.  There is a heightened penalty if the IRS considers your failure to file fraudulent – that is, if you are purposefully not filing returns in order to avoid paying taxes.
  • Penalty for failure to timely pay.  The IRS may also impose a penalty if you timely file your taxes but fail to pay any outstanding taxes on or before the due date.   You could also be assessed a failure to pay penalty if the IRS determines you owe more taxes than what was calculated on your return, and you fail to pay the new amount of the tax the IRS has assessed by the due date.  As with the failure to file penalty, the amount of the failure to pay penalty will vary from taxpayer to taxpayer based on the amount owed. 
  • Penalty for accuracy-related issues.  The IRS also imposes penalties against taxpayers for issues that will render a taxpayer’s return inaccurate, including:
    • Negligence or disregard of rules and regulations;
    • Substantial understatement of income tax;
    • Substantial valuation misstatement;
    • Substantial overstatement of pension liabilities; and
    • Substantial estate or gift tax valuation understatement.
  • Trust Fund Recovery Penalty.  This is a penalty imposed against payers required to collect, account, and deposit quarterly employment taxes.  If you are responsible for these tasks and willfully fail to perform them, the IRS will impose a penalty under IRC Section 6672. 
Can the IRS remove a penalty that I was assessed?
Yes, the IRS may remove or reduce a penalty you have been assessed.  This is referred to as a penalty abatement.  A taxpayer seeking this relief should be prepared to demonstrate to the IRS that a penalty abatement is proper given the facts and circumstances of the taxpayer’s case. 
When are penalties abated or removed?
The requirements for abatement differ depending on which penalty was imposed. 
For example, for failure to file and failure to pay penalties,  a taxpayer must demonstrate his/her failure had a reasonable cause and was not the result of willful neglect.  Medical problems, financial difficulties, and other emergencies may qualify.  While each taxpayer’s case is different, common factors the IRS may consider include:
  • The presence of a specific incident or event that prevented the taxpayer from complying with the rules;
  • How long the taxpayer waited to comply with the rules and any efforts made to comply with the rules; and
  • The taxpayer’s past history of compliance.
In the case of accuracy-related penalties, the taxpayer may challenge the underlying penalty by showing there was reasonable cause for his/her position and that the taxpayer was acting in good faith.  
For trust fund penalties, a taxpayer may challenge the penalty by demonstrating he/she is not a “responsible person” for tax responsibilitiesor did not “willfully” fail to perform the responsibilities.
 Discussing penalty abatement or removal with a local attorney…

If you are a Washington taxpayer and would like to discuss whether a penalty abatement may be a good option for you to pursue, contact Insight Law for a free consultation with a local tax attorney.  Call (206) 397-4780, or click the Tax Attorney link below to visit our website.

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