How To Know If You Qualify For IRS Penalty Abatement

An old adage says that the only two things that are certain in life are death and taxes. If there’s one thing Americans hate, it’s paying taxes.

How much do Americans hate paying taxes? According to a survey from WalletHub, one in four Americans would gladly get IRS tattooed on their body for a future free from taxes. What’s more, another 11 percent of those surveyed would name their first-born child Taxes.

For as much as Americans hate paying taxes, there’s no denying that it’s important and not paying them could have some dire consequences:

  • About 1.1 million people will be audited by the IRS each year and a third of those audits are conducted in the field by IRS officials.
  • The IRS can audit any business tax return within three years of filing and it can collect back taxes owed for up to 10 years. As an example, if a 2017 audit of a return filed in 2015 finds discrepancies in previously filed returns, then the IRS can collect back taxes owed between 2007 and 2017.

With so much at stake, it pays to know what to do and how to do it correctly when it comes to paying the tax man every April 15. For small businesses, individuals and countless others, paying taxes correctly and on time is crucial.

Even though it’s important, there are scores of folks who don’t pay taxes. Each year, Americans fail to pay $458 billion in taxes and underpayment amounts to almost $40 billion a year.

For new taxpayers who make a tax mistake, there is a form of help: the IRS penalty abatement.

What is the IRS penalty abatement? Simply put, it allows a first-time noncompliant taxpayer to request abatement for certain tax penalties in a single period. For individuals, they can request a failure-to-file or failure-to pay penalty waiver.

To qualify, a taxpayer must be the following conditions:

  • The taxpayer must not have been assessed any other “significant amount” penalties on the same type of tax return within the last three years.
  • He/she must be in compliance with all the proper tax filing and payment requirements.
  • He/she has arranged to pay any taxes which are due, usually through an IRS installment agreement.

The IRS penalty abatement waiver was introduced 12 years ago, but is used infrequently by taxpayers who meet the requirements. While a taxpayer can ask for an IRS penalty abatement waver, they can also request relief from the failure to pay, deposit or file penalties.

  • Before that type of penalty is accessed to the taxpayer, they can file something called a penalty nonassertion request with a paper tax form to persuade the IRS not to automatically access them a penalty.
  • After the penalty has been accessed, the taxpayer can write a penalty abatement letter or call the IRS to request an IRS penalty abatement. Consulting a tax professional can also give the taxpayer the ability to make such a request online.
  • If a taxpayer has been penalized and paid all the necessary fines, they can request a refund with a specific form (form 843). The refund claim has to be filed within two years of the date on which the penalty was paid.

If you’ve gotten IRS unpaid tax notices or need to make a first time penalty abatement request, consulting a tax professional or tax lawyer is a good idea and they will be able to give you a good idea of what your options are to resolve your problem.

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