Tax Penalty Abatement 101

Owing money to the Internal Revenue Service is hard enough, but when the IRS tacks on penalties to the sum, it can turn a molehill of a judgment into a gigantic mountain. The added insult to injury can be frustrating considering that the IRS applies penalties regardless of the underlying circumstances of the taxpayer.

The good news is that the IRS has carved out a program by which tax penalties can be abated or discharged. Of course, the onus is on the taxpayer to show that their situation meets one of several “reasonable causes” that have been specifically recognized by the IRS as reasons to discharge the penalty. There are roughly four elements that the IRS evaluates in determining whether or not to grant an abatement for reasonable cause:

1) The reason is compelling. Unfortunately, “my dog ate my tax return is not a compelling reason.” Reasons that are compelling are the taxpayer exercised ordinary business care and prudence to make every effort to comply with the law and still came up short; death, serious illness, or an absence that was unavoidable; natural disasters, fires, and other unrests, especially if the area has been designated as a disaster area; inability to obtain records; the taxpayer relied on erroneous or simply bad advice; and the catch all—ignorance of the law. Keep in mind that the IRS may demand proof of any of these events or excuses.

2) Your past taxpaying behavior. Having a history of compliance with tax obligations can absolutely work in your favor when seeking an abatement just as having a history of non-compliance can be used against you. Of course, it is still possible for someone with a pristine record to be denied an abatement and someone with a not-so-clean record to be granted one.

3) The amount of time it took you to become compliant. If the natural disaster that prevented you from filing your tax returns happened in the 1980s and you still have not filed, chances are you will not be able to seek an abatement for the penalties on this violation. The IRS looks to see how long it took after the event for the taxpayer to come into compliance. With some reasonable causes, such as destruction of records in a flood or fire, this may be a longer period of time than with an unavoidable absence.

4) What was your control of the circumstances that caused the violation. Even if you could prevent a forest fire, if it burns your home down and your records in it, this situation is entirely out of your control. Similarly flooding and tornados will likely be considered to be out of your control. What about, however, going back to the same shady tax preparer year after year even though each year they give you bad advice that causes violations? Is this out of your control? Maybe, maybe not. Is your inability to obtain records due to you letting the rent on your storage unit lapse and the records were auctioned off? Again, these are all valid issues that the IRS will likely investigate as part of its determination.

If you are facing tax penalties, consulting an attorney who is well-versed and knowledgeable about tax issues is vitally important to ensuring the success of your abatement request. The attorneys at Weisberg Kainen Mark have the experience and knowledge to efficiently assist you in making the strongest request possible for an abatement. Contact us today to get started.

Share this on...Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someone

Written by Weisberg Kainen Mark, PL

Weisberg Kainen Mark, PL

Weisberg Kainen Mark, PL is a Miami-based law firm focused on providing comprehensive legal support to individuals and corporate entities caught up in tax controversies or charged with a criminal act. As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.