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The IRS will add penalties on top of your tax burdens for many reasons. However, if you can prove reasonable cause, the IRS will abate or decrease its penalties.
What is Penalty Abatement?
Penalty Abatement is a program that allows you to escape the penalties levied against you because of not filing or failing to pay your taxes.
Oftentimes, the penalties and interest that get accrued can become greater than the amount of taxes you owe. If taxpayers fail to file or pay the returns, the IRS will keep adding penalties at an extremely high rate.
The IRS charges 5% of the amount due every month for failure to file, and 0.5% for failure to pay for a maximum of 25% each. Because of 0.5% reduction in penalty for any month, the maximum penalty amount combined is 47.5% of the taxes owed. You’re being charged an additional interest (compounded daily) on your back tax bill.
If you can prove a reasonable cause, the IRS will abate or decrease its penalties.
Some of the reasonable causes are:
- Death, serious illness, unavoidable absence
- Fire, casualty, natural disaster
- Unable to obtain records
- Mistake was made
- Erroneous advice or reliance
- Written/oral advice from the IRS
- Ignorance of tax laws
- Reasonable cause/ordinary business care and prudence
- Undue economic hardship
However, even if you think that you qualify for these reasons, it isn’t easy to reduce or waive your IRS penalties and interest. The IRS agents may still reject the request even if the request is submitted properly.
Eligibility for Penalty Abatement
To be eligible for penalty abatement, you must meet the exact guidelines that the IRS requires. It is a lot easier for the IRS to reject it than to accept the request.
It’s urged to resolve the back tax issue, as soon as possible. The more you wait, the more penalties and interest will snowball and will become an excruciating burden.
Our tax professionals at James M. Cha, CPA & Company will review your case if you qualify for a special abatement and help show proof of at least three years of paying taxes on time. If the taxpayer meets the qualifications, James M. Cha, CPA & Company will create a request case that the IRS cannot reject.