Tax penalties can be distressing, as they add an additional sum to the amount that you may already owe to the government. Navigating tax law is challenging, so it’s not uncommon for individuals to find themselves dealing with a penalty of some sort. It’s important to know that these penalties are not immutable. There are several situations where you may qualify to have the tax penalty removed. You can pursue these avenues for up to three years after filing, and request a refund of your penalty even if you’ve already paid.
Tax penalty abatement forgives the penalty fee that was assigned to a taxpayer for improperly handling their taxes. There are many different penalties that you may be assigned, but the most common are:
It’s best to file for tax penalty abatement as soon as you become aware of the penalty that you’re facing. The longer you wait, the higher your assessed penalties and charges may be. By including a request for tax penalty abatement with your original filing, you may avoid the stream of penalty notices and payment requests that can follow.
There are two primary ways to get tax penalty abatement. You can either assert that there was reasonable cause for your error or use your first time penalty abatement, which is something like a “get out of jail free” card. We’ll explore both options to help you determine which approach is best for your needs.
To receive a reasonable cause tax penalty abatement, you must prove that something happened outside your control that caused you to file or pay your taxes late. If you’re habitually late filing your taxes and do not have a reasonable explanation that proves the tardiness was out of your control, you will not qualify for tax penalty abatement. Some of the possible reasons for a qualifying tax penalty abatement include:
You should contact the IRS as soon as possible to discuss your tax penalty abatement. If the penalty is less than $500, you can often settle the issue over the phone. Call the IRS prepared to offer a detailed description of what happened. Remember that you will need to cite one of the reasons above for your tax error to receive an abatement.
For larger penalties, you will need to write a letter requesting reasonable cause abatement. Fill out Form 843, Claim for Refund and Request for Abatement. You should also include a penalty abatement letter explaining your situation. When writing this letter, it’s helpful to include:
If this task seems a bit overwhelming, you can reach out to a debt relief company like Solvable. We offer professional assistance navigating the ins and outs of tax penalty abatement.
The first time penalty abatement (FTA) is available just once. This program is designed to reward taxpayers who have an otherwise clear history and have made just one mistake that resulted in a penalty. You cannot apply the FTA to multiple tax years. If you owe penalties on more than one year, you can apply for FTA for the earliest year only.
To qualify for a First Time Penalty Abatement from the IRS, you must meet the following qualifications:
If possible, include your request for penalty abatement with your taxes, so you can begin the process of reviewing this paperwork as soon as possible. It typically takes three to four months for the IRS to make a decision on a tax penalty abatement.
If your request for a reasonable cause abatement is denied, consider appealing the case. This decision is made by an individual and is therefore subjective. You may get a more favorable response when you appeal simply by reaching a different person.
Understanding tax law can help you avoid many penalties that you may inadvertently incur simply because you weren’t aware of all the applicable rules. For example, if you’re assigned an estimated tax penalty for failure to pay enough in your estimated taxes during the year, you can immediately cancel out this penalty if you prove that you paid 90% of the assessed tax during the current year, or you paid 100% of the current tax shown on the prior year’s return.
We work with you to help you understand all issues surrounding your tax penalties. This is important because it will not only help you escape these penalties for the current year, it can help you avoid any similar penalties in the future. Keep in mind that a first time penalty abatement can only be used once. If you’re relying on this type of abatement for the current year, you should be particularly mindful to make sure you don’t incur additional penalties in the future.
Before you pay additional funds to the IRS for a tax penalty, thoroughly explore all your options for a tax penalty abatement. This may help you put much-needed money back in your pocket this year.