Updated: Oct 23
No one likes to pay penalties. IRS penalties are no exception. They are often avoidable but are added to the tax assessed due to lack of planning by the taxpayer. Whether you miscalculated your tax or had a life event happen, you may be eligible to have those penalties modified, reduced, or even completed removed! The IRS refers to the removal as Penalty Abatement.
Note: The IRS will almost always positively respond to a request to reduce or remove penalties when you are actively working with them to resolve your tax problem! If you aren't sure where to start and need an advocate to help you get these penalties removed Bowens Tax & Bookkeeping Solutions handles penalty abatement and would be happy to step into your shoes to handle this for you. Book a call to see if you are a good fit to work with us at https://bookingbowens.as.me/
Your two options for getting your penalties removed are First-Time Penalty Abatement and Reasonable Cause. I will only share an overview with you in this article but will go into more detail about each in a later blog post. Let's start with First-Time Penalty Abatement first.
First-Time Penalty Abatement
The rules of First-Time Penalty Abatement aren't difficult but everyone doesn't automatically qualify for this form of tax relief. First-Time Penalty Abatement has actually been around for a long time but it has become more popular since updates were made to the rules in 2013. Here are 5 things to know about First-Time Penalty Abatement.
Can only request for one tax period not multiple years/periods.
You must have a "clean" compliance record. No failure to file or failure to pay penalties for three years prior to the year you are requesting your first-time abatement.
You can request it verbally over the phone, no form is required.
If the request is accepted it is usually approved on the spot, while on the phone.
All of your tax returns must be filed, paid, or an arrangement must be made to pay them.
If you don't qualify for First-Time Penalty Abatement it's okay. There may yet be a way for you to get your penalties removed through section 20 of the Internal Revenue Manual, Reasonable Cause.
This type of penalty relief isn't as easy to obtain as First-Time Penalty Abatement, however if you know the ground rules you may still be able to get the IRS to accept your request. There are 9 different reason that they may accept this request but before we even get that far lets take a look 3 things you should know before even applying for this type of penalty abatement.
This type of request must be in writing, you cannot request it over the phone.
Timing is everything! The event must match the tax years involved in the request being made.
Supporting documentation is absolutely necessary.
If you meet all of these requirements you're in good shape so far. Let's look at a general overview of the 9 reasons the IRS may let you qualify for to get your penalties removed, reducing your overall tax obligation to them.
Death, Serious Illness, or Unavoidable Absence
Fire, Casualty, or Natural Disaster
Unable to Obtain Records
Mistake was Made
Written or Verbal Advice From the IRS
Ignorance of Tax Laws
Reasonable Cause/Ordinary Care and Prudence
Undue Financial Hardship
Now you may have looked at some of these reasons and thought to yourself "well that's easy enough" but keep in mind #2 and #3 from the 3 things you must know before even applying: timing and supporting documentation are everything when requesting that the IRS allow you to pay less money than they say you owe.
I'll cover all 9 of these in greater detail in the upcoming weeks. If you find yourself in a situation where your penalties are ridiculously high and you need relief today but don't know where to start feel free to book a call with my team at Bowens Tax & Bookkeeping Solutions. If you're a good fit to work with us we'll be on the phone with the IRS as soon as possible so you can live your life and get your tax debt behind you. But you have to make the first step and book the call!
Timalyn S. Bowens EA is America's Favorite EA and Tax Expert who will work hard to find a customized legal solution for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states. As the host of Tax Relief with Timalyn Bowens and a YouTube content creator she empowers taxpayers to make educated decisions about their tax situation.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.