The Internal Revenue Service (IRS) penalties can admittedly be daunting and heavy on the pocket. However, not many people are aware that qualifying methods for penalty abatement exist. This article will shed light on these lesser-known methods to qualify for IRS penalty abatement. So if you have been bogged down by IRS penalties, you might just breathe a sigh of relief after reading on.
Understanding IRS Penalty Abatement
IRS penalty abatement refers to the reduction or elimination of penalties imposed by the IRS due to non-compliance with the U.S. tax laws. It is granted under certain circumstances, including administrative wavier or the ‘first-time penalty abatement’ (FTA), reasonable causes, and statutory exceptions.
What is the First-Time Penalty Abatement (FTA)?
The IRS introduced FTA as administrative relief designed to abate penalties for taxpayers with a clean compliance history. The waiver applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties.
Deciphering Reasonable Cause
Reasonable Cause refers to an unforeseen event beyond the taxpayer’s control that rendered them unable to meet their tax obligations. This might include natural disasters, serious illness, theft or destruction of records, or even misleading advice from a competent tax professional.
Little-known methods to qualify for IRS penalty abatement
1. Meet the Clean Compliance Criteria
For FTA, three years of clean compliance before the penalty year is mandatory. However, many taxpayers don’t realize that short-term late payments or small tax debts may not disqualify them from this clean compliance history.
2. Exploring the Reasonable Cause Abatement
Many taxpayers don’t explore the possibility of reasonable cause abatement. If there was any genuine reason that prevented fulfilling tax obligations, the IRS might consider it for penalty relief.
3. Savvy use of Statutory Exceptions
Statutes or provisions in the Internal Revenue Code can exclude the taxpayer from certain penalties. This legal cover might often be overlooked due to lack of awareness.
FAQs about IRS Penalty Abatement
Q: What does it mean to have a clean compliance history?
A: A clean compliance history means the taxpayer did not face any penalties for the previous three tax years before the penalty year.
Q: Can I file for abatement of penalties due to a reasonable cause?
A: Yes, if you have a legitimate reason that prevented you from meeting your tax obligations, you can file for penalty abatement due to reasonable cause.
Q: How can I use statutory exceptions for IRS penalty abatement?
A: You can consult a tax expert or attorney who can guide you on the legal provisions entailing statutory exceptions applicable for penalty relief.
In conclusion, IRS penalty abatement is not as elusive as it may seem. By understanding the rules, complying with tax laws, and leveraging the provisions given, qualifying for penalty relief can be more within reach than you think.
