IRS Penalties and Interest Abatement’s Top Tips from a Former IRS Agent and Tax Manager.
1. The IRS will only abate penalties for reasonable cause. Reasonable cause is based on the taxpayer’s specific circumstances. The general rules apply on a case by case basis.
2. Under reasonable cause the first thing the IRS will look for is what happened and when did it happen. Most cases are denied because the claim does not fit the time period involved.
3. The IRS will also look at how the taxpayer handled other affairs during that period of time. If you handled other situations competently, the IRS may determine you do not have reasonable cause. Reasonable cause does not exist if, after the facts and circumstances that explain the taxpayer’s non-compliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within a reasonable period of time.
4. The IRS will look to see that after the reasonable cause event the taxpayer did comply in a timely manner. It is important to document a timeline that fits your reasonable cause.
5. The IRS will immediately check on the compliance history of the taxpayer. If the taxpayer has a non- compliant history, the IRS will probably reject the claim.
6. Reasonable cause may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances. For example, consider:
- The taxpayer’s education,
- If the taxpayer has been subject to the tax,
- If the taxpayer has been penalized before,
- If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know, and/or
- The level of complexity of a tax or compliance issue.
7. If a “mistake was made”, the IRS will want supporting documentation and affidavits. Usually, signed under penalties of perjury to show your truthfulness.
8. In the case of death, serious illness, fire or natural disaster, you will need to provide all documents. These cases are usually excused by the IRS.
9. An undue hardship may support the granting of an extension of time for paying a tax or deficiency, providing that an undue hardship must be more than an inconvenience to the taxpayer. The taxpayer must show that they would sustain a substantial financial loss if forced to pay a tax or deficiency on the due date. Documentation is a key issue on this type of abatement.
10. Most abatement’s that are not accepted are because of a lack of credible documentation, support, and the claims that come to the IRS.The IRS processes thousands of abatement claims a year. To improve your chances of success make sure yours is clear, concise and well documented.
