If someone is able to pay his or her taxes in full, they should; but if this is not possible, the person will incur penalties and see their tax bill rise even higher. When one is late in paying his or her taxes, the IRS evaluates this and automatically adds penalties to the taxpayer’s account. This means the penalty is added by the IRS without knowing the reasons for the taxpayer’s lateness. The person may have a valid reason for this delay and be entitled to penalty abatement — a refund or reduction of penalties. It can be difficult to prove one deserves penalty abatement, but with the help of professionals, one can get his or her money back.
Who Should Apply
Whenever a person can pay off their debt in full, they should — as soon as they can — but unfortunately for many, this is not possible, and penalties and interest grow daily, making the concept of penalty abatement a good option for many taxpayers. Waiting to pay off a debt when one has the funds but just hasn’t gotten around to it is not a valid reason to ask for penalty abatement. For those who have already paid off their debt, they may be eligible to get penalty abatement on the penalties they previously paid. In addition, those who had a good reason for filing late or not paying may also qualify for penalty abatement. Nevertheless, the IRS needs to be convinced absolutely that is it true, thus the process of penalty abatement usually involves a lot of documentation.
Valid Reasons
Some circumstances that are valid to get penalty abatement include:
- Natural disasters
- If you are the victim of theft or embezzlement
- Necessary records have been destroyed or lost
- Bad advice from an accounting professional
- Death in the family or serious illness of you or a family member
- Alcohol or drug addiction of you or a family member
- A long unemployment despite serious efforts to find work
- Error in filing a new form for the first time
- Psychological problem needing professional help
- Fixed income because of retirement or other reasons
- Acting as caregiver for someone who is unable to care for him or herself
The taxpayer should try to provide as much documentation as possible to help strengthen their case for penalty abatement. For example, if the problem was a theft, then a copy of the police report would be good to show in the penalty abatement case. Or, if there was a natural disaster, photos, newspaper clips, insurance claims and any other evidence of the disaster would greatly help one’s case. Basically, no matter what the claim for penalty abatement is, the person must be able to back up the story to convince the reviewer of its validity.
How to Get Penalty Abatement
As discussed previously, to receive penalty abatement, the taxpayer must be able to prove they were prevented from paying or from filing on time, due to issues that he or she could not control. Professional help is often sought when applying for penalty abatement because specific wording and a concrete understanding or the relevant IRS codes is necessary. To get penalty abatement, the taxpayer must demonstrate the validity of their claims to the IRS in writing.
The circumstances that one is citing for penalty abatement have to have occurred during the time the person fell behind as well as correlate with the reasons for the tardiness (some of these causes to receive penalty abatement were listed previously). The IRS also must see that the person has made an effort to pay back debts, such as a payment plan.
Lastly, when trying for penalty abatement, one should keep in mind that these causes are evaluated by an actual person at the IRS. Your penalty abatement case is up to that person’s discretion, so one should document their cause as well as they possibly can, and always remember to keep a record of everything remotely related to tax issues, because you never know when it may be needed.
By Lauren Culliton