Dealing with IRS penalties can be overwhelming, but there are legitimate ways to have them reduced or eliminated entirely. Attorney John D’Amato has three decades of experience helping individuals and businesses resolve tax issues, and here, he shares the most effective strategies for getting IRS penalties erased.
First-Time Tax Penalty Abatement
The IRS provides First-Time Penalty Abatement (FTA), a potent but underutilized program. This administrative waiver can completely eliminate penalties for first-time offenders who meet specific criteria. To qualify, you must have:
- A clean penalty record in the previous three tax years
- Filed all required returns or valid extensions
- Paid or arranged payment for any taxes due.
The FTA program typically applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties.
Reasonable Cause Defense
A reasonable cause defense can be highly effective when circumstances beyond your control prevented tax compliance. Common qualifying situations include:
- Natural disasters affecting your business or records
- Death, serious illness, or unavoidable absence
- Fire, casualty, or other disturbances
- Inability to obtain necessary records.
The key is demonstrating that you exercised “ordinary business care and prudence” but still couldn’t meet your tax obligations.
Statutory Exceptions
Some specific provisions in the Tax Code may exempt you from certain tax obligations, but IRS agents do not always catch these exceptions when assessing penalties. It may be possible that a certain exception applies to you which the assessment failed to account for. Here are examples of exceptions:
- You mailed your tax return on time
- You resided in a federal disaster area
- You relied on incorrect advice from the IRS which caused your penalty
- You were engaged in military operations in a combat zone.
If you received incorrect written advice from the IRS and followed it, resulting in penalties, you may qualify for statutory exception relief. To succeed with this approach, you’ll need:
- Documentation of your written request for advice
- The IRS’s written response
- Your tax return showing how you relied on their guidance, AND
- The penalty notice related to following their advice.
Administrative Waivers
The Internal Revenue Service has discretionary authority to waive penalties through administrative relief programs. These waivers often apply during:
- Natural disasters
- Major system changes
- Significant tax law modifications
- Public health emergencies.
For example, numerous tax requirements were waived during the 2019-2020 coronavirus pandemic to provide relief to affected taxpayers.
Professional Representation Strategy
Working with an experienced tax attorney significantly increases your chances of penalty abatement success. In 2022, the IRS assessed $65.6 billion in civil penalties but ultimately abated over $13 billion – approximately 20% of the original amount.
Additional Strategies For Tax Penalties Abatement
Request Reasonable Cause in Writing
While taxpayers often call the IRS to request penalty abatements, phone requests are only consistently successful for FTA cases. Reasonable cause abatements, on the other hand, are rarely approved through phone requests. Instead, taxpayers should complete Form 843: Claim for Refund and Request for Abatement, attaching their explanation and supporting evidence to justify their reasonable cause claim.
Alternatively, a written letter can be submitted, but Form 843 is preferred as it ensures all necessary information is included.
Appeal Adverse Determinations
The IRS often overlooks the full context of a taxpayer’s situation when making penalty abatement decisions. If one specific reason doesn’t qualify for abatement, other valid circumstances may be disregarded due to reliance on a flawed computer tool used by the IRS. Many reasonable cause requests are denied because of this issue.
Taxpayers should appeal these decisions to ensure their case is reviewed by a person who can consider all relevant factors and make a fair judgment.
Inclusion of Key Elements of a Reasonable Cause Abatement Request
When submitting a reasonable cause abatement request, it’s best to be thorough using the following strategies:
- Detail the uncontrollable circumstances that led to noncompliance (for instance, illness, incapacitation, or lost records).
- Show how these circumstances impacted other areas of your life, such as an illness preventing you from filing on time and from working.
- Provide evidence and a timeline of events during the period of noncompliance. For example, include medical records and a doctor’s note confirming your inability to perform normal activities due to illness.
Demonstrate Prior Compliance
According to IRS Policy Statement 20-1, penalties are intended to discourage noncompliance. Taxpayers should emphasize their history of compliance when requesting reasonable cause abatements.
For instance, if a taxpayer has reasonable cause for filing late in 2024 but doesn’t qualify for FTA due to a minor FTP penalty in 2021, they should explain their past compliance and provide context for the earlier penalty. A solid compliance record strengthens the case for abatement.
Follow Up on Abatement Requests
IRS penalty abatement requests can sometimes get misplaced within the system and are not trackable on transcripts. To confirm whether their request is being processed, taxpayers need to call the IRS directly. If the IRS cannot locate the request, it must be resubmitted.
Taxpayers facing repeated issues with lost requests should seek assistance from the Taxpayer Advocate’s office. Although the Advocate cannot approve abatements, they can ensure that requests are properly handled. Additionally, taxpayers with unpaid penalties should confirm that the IRS has placed a “collection hold” on their account while their request is under review.
Frequently Asked Questions: Internal Revenue Service Penalty Relief
How long does it take to get IRS penalties removed?
The timeline for IRS penalty removal varies depending on the method used and complexity of your case. First-Time Penalty Abatement requests can be processed immediately over the phone in some cases, while reasonable cause requests typically take 30 to 60 days for review. Complex cases involving multiple years or large penalty amounts may take several months, especially if appeals are necessary.
Can I request penalty abatement myself or do I need a tax attorney?
While you can request penalty abatement yourself, it is likely that working with a tax attorney will significantly increase your chances of success. The Tax Code contains numerous exceptions and technical requirements that non-professionals may miss. Additionally, experienced tax attorneys understand how to properly document and present your case to the IRS, ensuring all relevant facts and legal arguments are considered.
What happens if my penalty abatement request is denied?
You have the right to appeal the decision if your initial request is turned down. The appeals process also provides an opportunity to present additional documentation and legal arguments supporting your case. Working with a tax attorney during appeals is particularly valuable, as they can identify procedural errors or overlooked exceptions that might warrant penalty removal.
Are there any penalties that cannot be abated?
Yes, certain penalties are more difficult to abate than others. Accuracy-related penalties and fraud penalties typically require stronger evidence and legal arguments for removal. Additionally, estimated tax penalties often have specific technical requirements that must be met for abatement consideration.
How can I prevent future IRS penalties?
The best strategy for avoiding future penalties includes:
- Setting up automatic reminders for tax deadlines
- Maintaining organized financial records
- Working with qualified tax professionals
- Understanding your tax obligations
- Responding promptly to IRS notices
- Requesting payment arrangements before deadlines, if needed.
Let’s Work Together to Resolve Your IRS Penalties
At John D’Amato PLLC, we understand how overwhelming tax penalties can feel. With our experience successfully helping clients get their IRS penalties erased, we have the knowledge and dedication to guide you through this challenging process.
We’ve seen firsthand how proper legal representation can make the difference between paying thousands in penalties and having them completely eliminated. Our track record speaks for itself – we’ve helped countless New York residents and businesses successfully navigate the complex world of IRS penalty abatement.
Don’t let tax penalties continue to burden you and your family. Take the first step toward financial freedom by scheduling a free consultation with our office. We’ll review your specific situation, explain your options in clear terms, and develop a strategic plan for your penalty relief.
Call us today at (716) 703-9099 to discuss how we can help get your IRS penalties erased and put you back on the path to financial stability. Remember, the sooner you reach out, the more options we’ll have available to help resolve your tax issues.
Let’s work together to put your IRS troubles behind you.