Penalty Abatement

The IRS assesses penalties on taxpayers when federal taxes aren’t properly paid on time. Penalties are commonly assessed as monetary fines but can also be in the form of a lien or levy on your property. It can be in the form of jail time, as well. Monetary fines are based on unpaid taxes due past the deadline. However, you may qualify for a penalty abatement.

Penalties with monetary fines include the Failure-to-File penalty, which is for filing after the deadline if you owe money when your return is filed. In addition, Failure-to-Pay penalties are monetary, which is for having a back-tax balance after the deadline.

What is a Penalty Abatement?

The IRS may consider removing one of these penalties in extraordinary circumstances. These can include the death of a close family member or an extended hospital stay. This is called a Penalty Abatement. The IRS may also consider certain tax cases for a First Time Penalty Abatement waiver, which can be applied for a single tax period. Taxpayers must meet the following criteria to be considered for a First Time Penalty Abatement waiver:

  • All currently due returns are filed, or the IRS approved an extension,
  • The taxpayer doesn't owe any back taxes, or the IRS has agreed to a suitable payment arrangement,
  • The taxpayer didn't previously need to file returns, or the IRS didn't impose penalties on returns in the previous three years.

If you’re not sure if your case meets these criteria, you’re certainly not alone. Many taxpayers benefit from hiring professional and reputable tax relief professionals. In addition, they're often adept at maximizing the programs and waivers available from the IRS. These benefits combined help taxpayers overcome their back-tax debt.

IRS Considerations for Penalty Relief

If the IRS imposes a penalty on your back-tax balance, they may consider removing the penalty in extraordinary circumstances.

Presenting a request to the IRS to waive a penalty requires careful thought and preparation. Firstly, compare the information received by the IRS with the information you have in your records. Make sure the penalty wasn’t imposed in error. Errors do occur when penalties are being assessed; consequently, discovering an administrative mistake or other error is often one of the simplest ways to reverse a monetary penalty.

Secondly, if you determine that the penalty was accurately assessed, evaluate the cause of the penalty. Taxpayers who didn't pay their taxes on time because they forgot, didn’t know how or couldn’t afford it will likely be denied an abatement. However, being unable to afford the bill may qualify for a penalty abatement if there’s a severe financial hardship.

Generally, if there’s a reasonable cause that can be verified through documentation, the abatement has a good chance of being granted. The IRS notes common events considered to be reasonable causes for missing a timely tax return filing and/or payment on their website:

  • Fire, casualty, natural disaster or other disturbances
    • Inability to obtain records
    • Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
    • Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.

Documenting Reasonable Cause for Penalty Abatement

It’s critical to establish the event when presenting your case to the IRS for a penalty abatement. Moreover, be sure to explicitly communicate what happened and the date on which it happened. Explain how the event kept you from filing your return or paying your taxes on time.

Also, include how you tried to file and pay on time despite the event. If the penalty abatement request is for a corporation, estate or trust, discuss who had the authority to file and pay the taxes during the event.
Gather relevant documentation to support your case, such as hospital bills or court records. Markedly, include copies of them when submitting your request. Retain the original documents in your personal files for safekeeping.

Getting The Help You Need

According to the IRS, "You may qualify for relief from penalties if you made an effort to comply with the requirements of the law, but were unable to meet your tax obligations, due to circumstances beyond your control." Although they list examples of what this may mean (see above), these aren't exhaustive of what may constitute a penalty abatement. Discuss the particular circumstances of your case with a seasoned tax professional.

With no hard and fast rules to achieve a penalty abatement, the determination is certainly at the discretion of the IRS. Above all, presenting a clear case to the IRS with robust supportive documentation is crucial for a successful outcome. Contact a reputable tax professional to discuss your options for tax relief. A penalty abatement is one of several ways for taxpayers to seek relief from their back-tax debt. A tax relief professional may also be able to recognize other avenues of debt resolution with the IRS that would be appropriate for your case.

A Note from the IRS About Interest Abatement

The IRS says, "The IRS doesn’t abate interest for reasonable cause or as first-time relief. Interest is charged by law and will continue until your account is fully paid." However, a penalty abatement reduces the taxpayer's liability, which also reduces interest. The IRS charges interest based on the whole amount owed, including penalties.

Interest compounds every day from the day after the date the tax is due, even if the IRS grants the taxpayer an extension. The interest rate for all taxpayers, excluding corporations, is the federal short-term rate plus three percent. For current rates, go to the IRS website here and search "quarter interest rates."

lution with the IRS that would be appropriate for your case.

Why Tax Champions?

At Tax Champions, we’ve been working with clients to resolve their back-tax debt, for the least amount they qualify for, over the past 35 years. We have an exhaustive understanding of IRS procedure and can easily identify the most beneficial programs in each client’s case.

Contact us now for your free consultation regarding your personal circumstances. We’ll be happy to go over your options with no obligation to hire our firm and no high-pressure sales pitch. If you determine that our firm is a good fit for your needs, we’ll be happy to get started right away.

We’re on your side. So, we’ll negotiate with the IRS until we’re certain that you are only paying your fair share of taxes. In addition, we'll make sure your balance includes the least amount of penalties and interest possible.

Submit your contact information in the blue box on the right side of this page or give us a call direct at 888.518.8964 during the day and evenings, seven days a week.

Sleep better tonight knowing that your tax case is in our capable hands.

Call today.

n that you are only paying your fair share of taxes with the least amount of penalties and interest possible.

Submit your contact information in the blue box on the right side of this page or give us a call direct at 888.518.8964 during the day and evenings, seven days a week.

Sleep better tonight knowing that your tax case is in our capable hands.

Call today.


[1] Collection Procedural Questions 3. (2019, March 8). Retrieved from //www.irs.gov/faqs/irs-procedures/collection-procedural-questions/collection-procedural-questions-3

[2] IRS First-Time Penalty Abatement. (2018, August 2). Retrieved from //www.aicpa.org/interestareas/tax/resources/irsprocedureadministration/irspenaltyabatement.html

[3] Penalty Relief. (26 July 2019). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/penalty-relief.

[4] Penalty Relief Due to First Time Penalty Abatement or Other Administrative Waiver. (2019, March 21). Retrieved from //www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penalty-abatement-or-other-administrative-waiver

[5] What Taxpayers Need to do Once Assessed a Penalty After Filing Taxes //taxreliefprofessional.com/irs-penalty-interest-abatement

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Walter Wotman, CPA

Founder & Managing Partner

Walter Wotman's Tax Champions authored this helpful Guide to IRS Tax Resolution for American taxpayers. He is one of America's most experienced tax negotiators with over 35 years of experience helping thousands of clients settle difficult back tax issues.

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