Understanding IRS Penalty Abatement
IRS penalty relief can be granted if there is “Reasonable Cause.” The Internal Revenue Manual gives the following definition:
Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations.
Essentially, this means something beyond your control has occurred that has caused you not to file or pay your taxes in a timely manner. It also must be demonstrated that you took reasonable steps to “counter” the events and were still unable to pay and or file in a timely manner.
Although many of these circumstance evoke great sympathy when heard, sympathy is obviously not going to cause the IRS to abate your penalties. The case for abatement must be supported with logical and or legal arguments, and rounded off by tying everything together relevantly. Furthermore, each case is weighed on its individual merits, not on precedents of other cases. No precedence can be cited on penalty abatement cases.
What Does the IRS Consider Reasonable Cause?
The IRS gives a long list of events that will be considered for reasonable cause. They are:
- Ignorance of the Law (you must demonstrate you made a reasonable effort to learn the law)
- Error or Mistake was Made, but you must still show “due diligence, ordinary business care and prudence” have been exercised.
- Forgetfulness, but you must still show “ordinary business care and prudence”
- Serious Illness, Death, or Unavoidable Absence
- Unable to Obtain Records
- Incorrect Advice from a competent tax professional
- Incorrect advice directly from the IRS, written or oral.
- Fire, Casualty, Natural Disaster, Other Disturbance
- Acts of God
The Internal Revenue Manual goes on to say that any reason will be accepted as reasonable cause if it can be shown that the taxpayer exercised ordinary business care and prudence and, despite that, was still not able to comply with their tax obligations.
What IRS Agents Look For In Penalty Abatement Requests
The following list is taken from the Internal Revenue Manual and gives the guidelines of what IRS agents are instructed to look at when considering penalties abatement:
- What are the events that happened, when did it happen, and why did these events prevent you from complying with the tax law?
- How were your other affairs handled during this time? Did you (or does it appear that you) singled out the IRS not to be paid, but paid other creditors? What steps were taken to try and mitigate your circumstances? (Ordinary business care and prudence is closely looked at here.)
- Is there a direct “time line” correlation between what happened and the taxes being filed late or not paid?
- Is there a history of filing and/or paying late? The IRS will review your history; repeat offenders have a tougher job convincing the IRS that this was not intentional.
- Were the circumstances “beyond the control of the taxpayer” truly unavoidable, and could not be anticipated? If so, this generally establishes reasonable cause.
- Documentation will be the bulwark of your case. Provide as much proof of what you are arguing as possible. The more relevant “third party” evidence you produce, the better the chances for relief.
Submitting a Penalties Abatement Request (What We Do For You)
The IRS gives three ways to request an Abatement of Penalties:
- A written petition, which is the most common method and goes directly to an appeals officer (generally) who has a larger scope.
- Verbally, in person, or over the telephone.
- IRS Form 843 – Usually a Form 843 is filed with a written brief or petition.
Typically, we create a petition which will comprise of a formally structured letter with an introduction and a request for penalty relief under specific relief program(s).
This would be followed by a statement of the facts surrounding the case that demonstrate the “reasonable cause” and ” ordinary business care.” We must also include as much third party documentation of the facts as possible.
Finally, we will include any legal or code-related facts that would bolster your claim. (But remember: this is not a court case, so there are no precedents).
If you submit a Penalty Abatement request and it is denied, you cannot make a request on the same grounds again. Therefore it is very important that you put forth the best case possible when you submit. This is why professional representation, such as IRS Problems Resolved, is highly recommended.
