Darrin Mish: IRS penalty abatement. What is it, and how do you get it? Well, IRS penalty abatement is something that needs to be looked at in just about every case, in every IRS problem resolution case, unless, of course, you're going to resolve the case either through full payment, in which case... Well, apparently, if you think about it full payment, you might still want to do penalty abatement.

Bankruptcies If you're going to discharge the entire liability, including the penalties, then penalty abatement probably doesn't make a whole lot of sense. So, you probably wouldn't want to bother with it, then.

The third option in which penalty abatement would not be appropriate would be when you're going to settle the entire case through an accepted offer and compromise.

Otherwise, penalty abatement is a viable option probably for just about every IRS problem resolution case. If you're going to enter into an installment agreement where you're going to make monthly payments or periodic payments, or you're going to be in hardship status in which the IRS indicates that they're not going to be seeking collection from you, but that interests and penalties will continue to accrue, it might be smart to go ahead and request the penalty abatement.

Again, like I iterated a minute ago, if you were going to pay in full, it might still make sense to request penalty abatement.

Penalties can be used for both personal and payroll taxes. The criteria for penalties to be abated is the reasonable cause standard. Now, what does reasonable cause mean? It means that, despite the fact that the taxpayer exercised ordinary business care and prudence, that something unforeseen occurred and, therefore, caused the failure to file or the failure to pay the tax to occur.

You have to offer some reasonable explanation why the penalties shouldn't be paid and why they should be abated. You have to offer a reasonable explanation for why the taxes weren't filed and/or weren't paid on time.

What I would suggest that you do is you write out a narrative explaining why exactly you feel that you have reasonable cause. Couch it in terms of that ordinary business care and prudence standard. "There was a hurricane," for example, "and, therefore, I was unable to file and pay my taxes because all of my business records were lost when my house was destroyed." That's a pretty good reasonable cause explanation.

It's important to note that as the duration or the time frame for the failure to comply enlarges, it becomes harder and harder actually achieve penalty abatement. What do I mean by that? Well, if you have a track record of ten years of not filing and/or not paying your taxes not making estimated tax payments, for example then it's probably unlikely that you're going to get any penalty abatement. Why? Because despite the fact that a hurricane hit your house, and now you have a blue tarp on top of it, you weren't going to file and/or pay your taxes anyway. That's the sort of rationale and argument that you're going to get back from the IRS.

If you can confine it to a year or two or three, or even four maybe, then you probably have a better explanation of reasonable cause.

The timeframe that we indicate that it takes for penalty abatement to hear a response is sometimes something like 90 days to 180 days. Often times, you will receive a letter back from the IRS which indicates that you must full pay the taxes before they will consider your abatement request, and they indicate that that's what the law says. Well, that's incorrect.

If you get that and you don't feel like you want to go ahead and file the taxes or pay the taxes in full, rather then don't do it. Go ahead and write back a fairly strongly worded letter that says, "No, that's what the law says. Please consider my request."

Because, of course, if you're in an installment agreement or something and you're paying it out over a period of many years, it's going to take many years for the taxes to be paid before they will consider your penalty abatement request. In my opinion, the older and the more stale that your request gets, then the less likely it is they're actually going to accept it. I just wanted to point that out.

What you need to do is send your request via certified mail, return receipt requested, to your service center, wherever that might be. If you're in Florida, for example, you send it to the IRS Service Center, Atlanta, Georgia, 39901.

There are, of course, a lot of different service centers around the country. You're also going to want to make sure that you send it "Attention: Penalty Abatement Coordinator." That might help it get found. If you send your penalty abatement request straight to the service center without certified mail, it will most likely end up in a garbage can someplace.

If you are actually dealing with a revenue officer instead of something like ACS or some automated section of the IRS, then you are going to want to send your penalty abatement request straight to the revenue officer. Now, a little trick that they like to play on people is they'll say, "Your penalty abatement request, I'm not going to accept it as a penalty abatement request because you dealt with too many different topics in the letter."

So, if you're going to request penalty abatement from a revenue officer, what I want you to do is write on the letter, "Please consider this letter a formal request for penalty abatement." Go ahead and list out your facts and circumstances and why you think that you should prevail. Go ahead and send it in to the revenue officer return receipt requested, certified mail. Make sure that they get it.

If you don't hear back from your penalty abatement request one way or the other within about a 90 day time frame, then you're going to want to file a Form 911 with a tax payer advocate service. In that 911, you're going to want to just complain solely on the fact that your penalty abatement request has been delayed and that you want them to hunt it down and help you get a resolution on that.

Now, if your penalty abatement request is actually denied, then you have appeal rights. You'll get a letter that says, "Your penalty abatement request has been denied," and they will go ahead and issue you a letter indicating exactly how to appeal that.

So, you're going to want to follow those directions, and definitely you're going to want to appeal that.

Now, in my opinion, penalty abatement is probably one of the most appropriate things for taxpayers to do for themselves. A lot of times, you'd be surprised at how little the penalties were in relation to your total balance. That's because remember folks that interest cannot be abated except for in certain extraordinary circumstances which most likely do not apply to you.

When you're looking at those statutory additions on your statement from the IRS it looks like a big number you have to remember that almost certainly half or more of that big number in the statutory additions is in fact interest and not penalties.

So, remember that penalties can be abated. You need to have a reasonable cause. "I didn't have the money" is not reasonable cause. Let me give you a couple of examples real quick before we sign off. Examples of reasonable cause would be, "A hurricane hit my house," "There was someone in my immediate family who had a terminal illness," "I was an alcoholic," or "I was in treatment for drug abuse," or something along those lines. My rule of thumb, and what I like to tell people is, if the letter makes you cry, then you have a chance at achieving penalty abatement.

If you're interested in penalty abatement and you don't want to do it yourself, then by all means give us a call toll free at (888) 438 6474. Or you can visit our website at getirshelp.com. Until then, thanks for listening and please stop by the website.