Stand Up to the IRS Blog

If you’re reading this you currently have or had a back tax debt.  It is also likely that you have talked to a handful of tax resolution professionals about the severity of your tax liability and the options available to fix it.  No doubt you’ve also been pitched the Penalty Abatement.  Some of you may have been promised a reduction of your total tax debt through Penalty Relief.  If you take one thing away from this page, let it be that there are No Guarantees in tax resolution, including penalty abatement.

No salesman or tax professional can guarantee anything in regards to your delinquent tax case without first analyzing your current financial condition and conducting a thorough investigation of your IRS account.  Even after these two key steps are completed, there is very little room to guarantee that you will save any money when dealing with your IRS back taxes.  

Keep in mind that an investigation into your IRS account can’t be done without your signed authorization.  This is an important point often left out of the pitch by more than a few salesmen out there.  Unlike federal tax liens, the sensitive taxpayer information necessary to conduct a proper investigation of a delinquent tax account is not a matter of public record.  This means a third party (salesman/tax professional) cannot receive any case specific information from the IRS about your account without first obtaining an authorization signed by you the taxpayer.

There Are NO Guarantees in IRS Penalty Relief

Now that we have the problem with outcome guarantees covered, let’s move on to the truth about your chances at reducing your tax debt through penalty abatement.

Internal Revenue Manual (IRM) Section 20.1 outlines the basics of IRS penalty relief.  If you are planning to resolve your own tax debt and submit a request for the abatement of penalties yourself, this is a great place to start.  It outlines the purpose of penalties and defines Reasonable Cause for the abatement of penalties.

What is the first step in requesting IRS Penalty Abatement?

One of the first items to consider before requesting the abatement of IRS penalties is whether or not you are up to date on your current tax responsibilities.  This means that all delinquent tax returns are filed and all current tax payments have been made in full and on time.  It is likely that the IRS will not consider removing penalties on past tax periods if you are currently accruing new tax debts.

It is important to show the IRS that the reason(s) for the accrual of your tax debt had a definite beginning and a definite end.  If you can’t do this, your chances of success are slim.  Let’s say you became ill two years ago and it prevented you from being able to pay your taxes.  If you’re still not paying your taxes on time today, the IRS will question whether the illness was really the cause of the delinquency. Put a different way – if a student blames her poor grades on bad vision, but continues to receive poor grades after wearing her new glasses, the teacher is going to have a difficult time believing that the student’s poor performance had anything to do with eyesight at all.

IRS Reasonable Cause for Penalty Abatement

Another important aspect of the IRS’ consideration of penalty removal has to do with “Reasonable Cause.”  This means that the noncompliance must have been caused by a circumstance out of the taxpayer’s control, one that could not have been anticipated or prevented.  Sticking with the student example, deteriorating vision is largely out of the control of the student and arguably couldn’t have been anticipated.  However, correcting the problem in a timely manner is in the control of the student.

The reasons for falling behind with your tax responsibilities must correspond with the dates of your tax delinquency.  The more tax quarters or years involved and the longer it took you to correct the problem, the harder it will be to get penalties removed. And remember, the IRS may ask you to provide substantiation to backup the circumstances outlined in your statement.  Be prepared to prove it.

You will find information about the IRS’ Reasonable Cause in the Internal Revenue Manual section 20.1.  It outlines what qualified for Reasonable Cause consideration.

Is There a Penalty for Not Filing My Tax Return on Time?

Remember that the IRS will look at why you didn’t pay the tax and why you didn’t timely file your tax returns.  There is a penalty for both late payment and late filing.  If you have penalties for failure to timely file returns, your reasons for non-compliance should not only include financial circumstances.  The IRS encourages taxpayers to file returns on time even if the tax due will not be paid timely.

At M&M we believe that an educated taxpayer is our best customer.  Hopefully you now have a realistic idea of your chances to gain penalty abatement from the IRS.  And if you are shopping for a tax resolution company, you now have the information you need to separate those that are telling you the truth from those that only see the money in your pocket.

Additional tidbits of information
 
The IRS offers a First-Time Abatement (FTA) to taxpayers under certain conditions.  You can find more information on the FTA in IRM 20.11.3.6.1.  
 
The IRS has the ability to abate penalties due to “hazards of litigation”.  See IRM 20.1.1.3 for more information.