Got a Tax Penalty? The IRS May Waive It if You Ask Nicely

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Over the past two days, our blogs have been discussing ways to get IRS tax penalties waived or abated. What if you still have a penalty and it hasn’t met the circumstances of the past few days? There still may be hope.

First, check to make sure that the information in the IRS notice you received is correct. They aren’t always correct and it’s important to verify that both the notice is accurate and thepenalty calculation was done properly. As an example, the IRS is notorious for miscalculating payroll tax penalties. This is an example of when you need to get the calculator out.

There are a couple more ways you may be able to get a penalty waived or abated that we haven’t discussed yet. First, if you can prove that you relied on oral advice from an IRS representative and it turned out to be incorrect then the penalty associated with taking that wrong action can be abated. Personally, I think that might be a hard one to prove. Make sure you keep good notes of who you talk to when you call them. You’ll need that information to solidify your case. As a general practice, it’s good advice to always take notes every time you talk to a taxing agency or, for that matter, any governmental office.

Reasonable cause is determined based on specific facts and circumstances in your situation. You need to be able to demonstrate that you used ordinary business care to meet your federal tax obligations but for some reason you were unable to do so.

Some typical situations where a reasonable cause defense could be successful include:

Fire, casualty, natural disaster or other situations out of your control,

You are unable to obtain records,

Death, serious illness, incapacitation, or unavoidable absence of the taxpayer or member of the taxpayer’s immediate family.

You can’t claim you simply didn’t have the money. That is not a reasonable cause for failure to file or failure to pay on time

In order to prove reasonable cause, there are some things you will need to explain:

What happened and when did it happen?

What prevented you from filing your return or paying your tax on time

How did these facts and circumstances affect your ability to file or pay your taxes on time?

Once the facts and circumstances changed, what action did you take to catch up on your filing and tax payment?

It’s always best to have some outside third-party verification of what extraneous events occurred. For example, hospital or court records or possibly a letter from a physician to establish illness or incapacitation with very specific details of what happened and when. If a natural disaster occurred, provide documentation of what that disaster was.

It’s important to note that while you may have a penalty waiver, you cannot get a waiver of interest to on the taxes. However, if penalties are waived then the interest associated with that penalty will also be waived.

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