IRS Penalty Abatement And Reasonable Cause

Being assessed a penalty by the Internal Revenue Service can be an overwhelming situation. Faced with potentially massive penalties a taxpayer’s financial future may seem bleak. Fortunately, there may be relief available. The IRS offers qualified taxpayers something called “penalty abatement.” But, what is and how is it determined? To provide you with some knowledge of the process, here is our guide to understanding IRS penalty abatement and reasonable cause.

What Is IRS Penalty Abatement?
When the IRS slaps taxpayers with a penalty for failing to file or failing to pay their federal taxes, there are certain steps the penalized party can take to resolve their issues. One of these is penalty abatement. The IRS is willing to consider any sound reason why a taxpayer failed to file a tax return, make a deposit or even pay any past-due taxes. Simply having a lack of funds is inadequate for claiming an abatement. The reasons behind the lack of funds, however, may be considered.

These circumstances are called “reasonable cause” and include:

  • Fire, casualty or natural disasters
  • Inability to obtain records
  • Death, serious illness, incapacitation, or unavoidable absence by the taxpayer or an immediate family member
  • Any other reason which illustrates using all ordinary care and prudence to meet tax burdens

If taxpayers meet these requirements, they may be able to claim a first-time abatement waiver.

First-Time Abatement Waiver
The Internal Revenue Service introduced the first-time abatement waver (FTA) in 2001to help taxpayers deal with federal tax problems. The FTA can be obtained by qualified taxpayers for failure-to-file, failure-to-pay or failure0to-deposit penalties. In order to qualify for an FTA waiver, a taxpayer must not have been assessed any penalties of a significant amount on the same type tax return within the previous three years. Further, they must comply with all federal filing and payment requirements. Taxpayers may only claim an FTA waiver for a single tax period only.

How To Establish Reasonable Cause
The Internal Revenue Service has certain facts which must be established to determine if a taxpayer meets the requirements forreasonable cause. These are:

  • What happened and when?
  • What circumstances prevented the taxpayer from filing or paying taxes for the period in question?
  • How did the circumstances affect their ability to file or pay?

Once these facts are established, what steps did they take to file or pay their taxes?

In the case of Corporation, Estate or Trust, did the affected person or an immediate family member have sole authority to execute the return or make payment?
To prove the above facts, certain documentation may be required. These may include, court records, hospital records or a physician’s letter to establish incapacitation or illness. Other relevant documents may be any documentation of events or natural disasters which could have prevented compliance with a taxpayer’s [CS1] [CS2] liabilities.

Have a tax defense question? Contact us 330-220-6372