One of the most common concerns people express when they have IRS problems is the penalties and interest. Many wish they could just pay the tax and not the additional charges. In this blog post, we’ll explore ways to eliminate or “abate” these penalties legally.
Understanding First-Time Penalty Abatement
The easiest and most straightforward method to reduce penalties is through first-time penalty abatement. This process is almost automatic. If you have not incurred penalties in the prior three years before the year in question, you’re eligible for first-time penalty relief.
How to Request First-Time Penalty Abatement
There are two ways to request this relief:
- Over the Phone: You can call the IRS and simply ask if you qualify for first-time penalty abatement. Sometimes, after some hold time and discussions, they might grant it on the spot. However, it might not always be approved immediately, especially if the penalty amount is substantial.
- In Writing: Another method is to fill out Form 843, a “Claim for Refund,” and request first-time penalty abatement formally. Send this form to the address listed in the instructions, but be prepared to wait. The IRS can take between three to nine months to respond. However, when it’s appropriate, these claims are almost always approved.
Delving Into Reasonable Cause Penalty Abatement
Another method to eliminate penalties is through reasonable cause penalty abatement. This requires a legitimate reason for not exercising “ordinary business care and prudence” in paying or filing taxes on time.
Crafting a Strong Request for Reasonable Cause Penalty Abatement
A successful reasonable cause penalty abatement request typically needs to be compelling and well-documented. Situations that might qualify include severe illnesses, hospitalizations, or even cases of addiction. Here are some tips:
- Express Genuine Hardship: The explanation should be so heartfelt that it nearly brings tears. This shows the severity of the circumstances.
- Provide Documentation: Supporting documents such as detailed doctor’s records can significantly bolster your request.
Note that this form of abatement is more challenging for prolonged periods of non-compliance, such as seven or more years. The IRS tends to expect that taxpayers should resume compliance within a couple of years, regardless of the challenges.
See https://youtu.be/z0AbvnQ6-oA for a video explaining this information on IRS Penalty Abatement
