Penalty Abatement

The IRS charges tax penalties when a taxpayer fails to file or pay a back tax debt on time or fails to correctly file or pay their taxes. A tax penalty can be a huge burden on a taxpayer, especially if that penalty is coupled with a large amount of tax debt. If you have received a tax penalty, it’s important to know that the IRS will sometimes offer penalty relief. There are three types of penalty relief the IRS will consider: Reasonable Cause, Administrative Waiver and First-Time Penalty Abatement, and Statutory Exemption.

Reasonable Cause

The IRS will consider giving you penalty relief if you have a reasonable cause to have been unable to pay the penalty. You must have tried to file and pay your taxes, but experienced a situation that was out of your control that stopped you from doing so. Lack of funds alone is not considered a reasonable cause, but the reason for a lack of funds may help you qualify under this type of relief.

Some typically accepted circumstances:

  • Fire, casualty, or a natural disaster
  • Inability to obtain records
  • Death, serious illness, incapacitation, or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
  • An error that is the fault of an IRS employee
  • Any other reason in which you can show that you tried in every possible way to meet your Federal tax obligations but were unable to do so
To receive “Reasonable Cause relief”, you’ll need to prove that you experienced one of these situations. The IRS will ask you for details and may ask for you provide proof such as: dates, what the exact circumstances were, how they affected your life, and how you tried to adapt to them. You may also need to provide hospital records, court records, a detailed letter from a physician, and/or documentation of the natural disaster or event that kept you from tax compliance. If you want to file for relief under Reasonable Cause, you will need to be ready to provide all necessary information and documentation.

Administrative Waiver and First Time Penalty Abatement

You can qualify for administrative tax relief if you qualify for First Time Penalty Abatement. This type of relief essentially rewards those who have a good tax payment history by relieving them of their first tax penalty. To qualify for this, you must meet the following three criteria:

  • Either you have never had to file a return before or you have no penalties for the 3 tax years prior to the one in which you received a penalty
  • You have filed all required tax returns or filed an extension of time to file
  • You have either paid or arranged to pay all taxes due.

You may also qualify under this category under the other administrative relief blanket if you received incorrect oral advice from the IRS.

Statutory Exemption

You may qualify for statutory exemption if you received incorrect written advice from the IRS. To prove that you qualify for this relief you will need:

  • Your written request for advice
  • The incorrect written response you received from the IRS
  • Specific information on how this incorrect advice from the IRS caused your penalty or incorrect tax increase

If you qualify for one of these three types of penalty relief, it can be extremely helpful in easing or erasing your tax debt. You can apply for these types of relief by submitting the IRS Form 843. Sometimes proving that you qualify for penalty relief can be complicated and you will want to make sure that you have all of your documentation in place so your request is approved the first time. You can appeal a rejected penalty relief request but it is certainly faster and less stressful to make sure you have your case in order. Consulting with a tax relief expert like those at Vanguard Tax Relief can help you get a tricky tax relief request approved the first time. If you have already submitted a penalty relief request and been denied, a tax relief expert can help you understand why this may have happened and help ensure your appeal is approved.

We’re here to help,
tell us about your tax debt

ASK AN EXPERT