Taxation & Estate Planning

Penalty Abatement

By Darrin Mish

As a taxpayer you can ask the IRS to reduce some or all of the penalties they may assess. Some of the most common penalties taxpayers face are: failure to file penalties, failure to pay penalties, late filing penalties, late payment penalties and failure to make timely estimated tax payments. According to the IRS penalty relief falls into four (4) categories; Reasonable Cause, Statutory Exceptions, Administrative Waiver, and Correction of Service Error.

Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercises ordinary care and thought in determining their tax obligations but is unable to comply with those obligations. Reasonable cause relief is not available for all penalties and in some instances the taxpayer must also prove they acted in ?good faith? and not because of ?willful neglect.?

Penalty relief due to statutory exceptions are specifically referred to in tax legislation. The most common and recognizable statutory exception would be in the case of federally declared disasters and emergency areas. Closely associated with statutory exceptions, relief from penalties can result from an administrative waiver. Administrative waivers are commonly issued when there is a delay in IRS printing and mailing forms or publishing guidance as to a particular tax issue, which would be issued through an official IRS notice. Administrative waivers for penalty relief can also include undue hardships suffered by the taxpayer and erroneous written and/or oral advice from the IRS, which would be applied to a taxpayer?s specific circumstances.

The final category of penalty relief is Correction of Service Error. The IRS could make an error in computing tax and assessing a taxpayers account. Computer programming and mathematical errors by the service also fall under this category of penalty relief. A taxpayer should keep in mind they always have the right to request penalty abatement if they have reasonable cause, exercised good faith and the penalty was not the result of willful or intentional neglect.

For more information about how to get relief from IRS penalties view the video below.

Full post as published by IRS Problem Solver Blog on August 05, 2008 (boomark / email).