IRS Penalty Relief
(Also, Federal Penalty Relief or How To Get IRS Penalties Abated.)
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Reasonable Cause penalty relief is available for some, but not all IRS penalties.
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What were the unusual circumstances that made it difficult to comply with the tax law?
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Do you have a history of not following the tax law? If you do, this doesn't work in your favor. If you have a history of following the tax law, this could work in your favor.
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Did you have problems with other aspects of your life when you were not able to comply with the tax law? This could show that there truly was something that was disrupting your "normal" life.
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The duration of your tax non-compliance may be a factor. The shorter the better.
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Were there circumstances beyond your control that made it difficult to follow the tax law?
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Was Death, Serious Illness, or Unavoidable Absence involved? This may be your strongest argument, if and only if, this situation can be supported by facts. Can you show that these medical conditions made it difficult to follow the tax law? Did any close relatives or contacts that you relied on for business, financial, or emotional support have severe medical conditions?
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Were you Unable to Obtain (tax related) Records? Why was this unusual? A fire would be unusual, and this might work in your favor. Throwing away the records yourself would probably not work in your favor. Certainly, trying to obtain the records as soon as possible after learning that they were missing might work in your favor. Did you act responsibly and quickly once you learned that information was missing?
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Was Ignorance of the Law involved? This normally will not work in your favor. However, this is worth considering if the penalty relates to some unusual or very technical facet of the tax law. Because of the current complexity of the law, this should be considered. Ignorance of the law could work against you.
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Was a Mistake involved? This usually does not work in your favor. If you have a history of making mistakes that result in not following the tax law, this can work against you. If it can be proven that you exercised ordinary business care and prudence, and still made the mistake, this might help abate penalties. Claiming a mistake could work against you.
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Was Forgetfulness involved? This reason is more likely to work against you. Forgetfulness that is medically related, might work to abate IRS penalties.
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Every time you contact the IRS for a specific tax period where reasonable cause may be used to abate penalties, bring your reasons for reasonable cause to the attention of the IRS. Just because they denied your request 2 months ago doesn't mean they will deny your request now.
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Paying the penalty may make it difficult to get the IRS penalty abated! This issue should be discussed with a tax professional.
This is best included in Form 1040 as an attachment to Form 2210. Discuss why it was so difficult to determine the correct level of estimated taxes. Describe how this year was different from last year. Describe any illness that was suffered by your family, that may have made it difficult to properly compute estimated taxes or the proper level of withholding. Describe why the complexities of the tax law made it difficult to properly compute estimated taxes or the proper level of withholding.
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It is our experience that tax professionals have better luck at getting IRS penalties abated. If you work with a tax professional, we strongly recommend that you contact them about any IRS penalty issues. It should also be pointed out that no one can guarantee that an IRS penalty will be abated. You don't know that your plea for penalty abatement will work until you have an IRS letter stating that they will abate the penalty!
How to get the IRS/State Interest & Penalty Calculator:
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We also consult on IRS penalty abatement issues and IRS penalty computations. You are welcome to call us at 1-800-326-6686.