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Paying taxes can be hard enough, but what if you’re hit with penalties on top of them? The IRS has over 100 different possible penalties that they can assess. Most of these penalties fit into one of two categories: collections and accuracy. Collections refers to late filing while accuracy refers to people providing incorrect information.
While the best course is to avoid paying penalties at all by filing on time and using accurate information, if you should find yourself facing penalties, there are some things you can do to mitigate those penalties and reduce your overall financial burden. There are four main categories of relief: reasonable cause, statutory exceptions, administrative waivers, and correction of IRS error.
Reasonable cause relief recognizes that the taxpayer may have proceeded reasonably even though the result ended up being inaccurate or late-filed. In these cases, the taxpayer exercised reasonable business care and prudence in assessing their tax obligations, but did not meet their obligation. These cases are judged on a case-by-case basis as they depend heavily on the facts of the particular case.
Situations that fall under the reasonable cause relief category include death (insert your favorite death and taxes joke here), serious illness, unavoidable absence, fire, casualty, natural disaster, inability to obtain records, mistakes, ignorance of the law, forgetfulness, and reliance on erroneous advice.
In some limited situations, the tax law itself provides an exception to a penalty, also known as a statutory and regulatory exception. This comes into play, for example, if a tax provision is made retroactive such that the application would cause the taxpayer to now owe a penalty. In other cases, if the taxpayer meets certain conditions, some portion of the penalty can be waived, such as interest on under-reported employment taxes.
When the IRS interprets or clarifies its rules to provide relief from a penalty that would otherwise be assessed, this is a case of administrative waiver. Administrative waivers become necessary when the IRS has a delay in printing or mailing its forms or publishing guidance that prevents taxpayers from meeting their obligations on time.
In general, it is advisable to file your request for penalty relief in writing. Oral requests can be made, but having a written record makes it much easier to track on both ends and prove that the request was made. Ideally, you should include as much information about the situation as possible and specifically address the type of relief you are requesting (i.e. reasonable cause or statutory exception). Some penalty relief requests must be made in writing under penalty of perjury.
As with most issues related to dealing with the IRS, it is always a good idea to have a legal professional in your corner to help guide you through the process of seeking a penalty reduction. The attorneys at Weisberg Kainen Mark have the experience and knowledge to fill this role well. Contact us today to get started.
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