Penalty And Interest Abatement
Penalty And Interest Abatement
When it rains, it pours. We’ve all heard the phrase, but it can be especially true for people with financial issues that seem to compound to the point of hopelessness. For example, think about someone going through a divorce. In addition to a broken relationship, they face issues with their home, custody of children, lawyer’s fees, court dates, and maybe even a frozen bank account. What happens when they then can’t file their taxes? Fortunately, there is hope for tax debt caused by these types of situations.
IRS penalty abatement can significantly decrease the amount of money you owe to the government. It is possible to be forgiven for some penalties and benefit from IRS interest penalty abatement. With these reductions in amounts, you’ll be able to reach a resolution with the IRS even sooner and avoid the government garnishing your wages or placing liens on your property.
What You Should Know
Anyone who owes taxes to the government faces different types of charges in addition to the original amount due. You can be charged penalties for failure to file your return and for failing to pay your taxes. In addition, you also face monthly interest charges on your back taxes, as well as on the amount charged for penalties. You should know that penalty charges, once assessed, are not set in stone. The IRS can be intimidating, but they do provide some avenues for forgiveness of tax mistakes, including reasonable cause penalty abatement.
Reasons For Interest And Penalties
The majority of IRS penalties fall under two categories: collection penalties (you didn’t pay) and accuracy penalties (you reported something incorrectly).
The most common collection related penalties are:
- Late filing: up to 25% of the unpaid taxes of the return
- Late payment: up to 25% of the unpaid taxes
- Late federal tax deposits: up to 15% of late deposits
The most common accuracy with related penalties are:
- Negligence penalty: up to 20% of the understated taxes
- Substantial understatement penalty: up to 20% of the understated taxes
Interest charges accrue for any amounts owed to the IRS. The interest-accrual period begins on the date that the return was due and runs until the taxes are paid.
IRS Reasonable Cause For Penalty Abatement
With penalties and interest charges, it doesn’t take long for the amounts you owe to the IRS to grow to seemingly insurmountable amounts. However, the IRS may forgive or reduce penalty charges for number of reasons. These “reasonable cause” exceptions include:
- Death or illness of the taxpayer or a close family member
- Unavoidable absence of the taxpayer (ex. prison)
- Destruction of the place of a taxpayer’s records through fire, casualty, natural disaster, or other disturbance
- Inability to obtain records
- Civil disturbance materially impairing ability to make payments (ex. divorce)
- Ignorance of the law
- Statutory exceptions or waivers
- Undue hardship
- Receiving incorrect information from a professional tax advisor
- The IRS provided bad advice directly to you
- Other reasons why you did not file or pay, but can demonstrate the exercise of “ordinary business care and prudence.”
Ultimately, the IRS penalty abatement is based on special circumstances due to which an individual could not make payments on their taxes.
First-Time Penalty Abatement Waiver
The IRS first-time penalty abatement waiver has been in existence for about fifteen years, but few taxpayers take advantage of this special provision. The primary requirement is that the taxpayer has not been assessed with any penalties of a significant amount within the previous three tax years. A taxpayer may only use this waiver once during any tax period.
Additionally, this administrative relief is dependent on the fact that you have filed all necessary tax returns or filed for an extension of time to file. The IRS first-time penalty waiver is only granted if you have paid or have made arrangements to pay any back taxes.
The IRS uses special software to determine whether a taxpayer is eligible to use the first-time penalty abatement waiver. This software has been known to return a high percentage of incorrect findings that taxpayers are not eligible. Taxpayers generally need some assistance to follow-up with, and convince, the IRS to reverse these initial determinations.
First-time penalty waivers also save you money on interest charges. Any interest being charged on a penalty will be reduced or removed in accordance with the adjustment to your penalties.
How We Can Help
IRS penalty abatements are granted after an examination into the unique reasons for failure to pay your taxes. These abatements are debt settlements justified by your individual financial issues. The factual nature of the inquiry requires the IRS to know more about your specific situation and less about the impersonal numbers like dates and amounts. The key is demonstrating that the taxpayer was up against mitigating circumstances which they could not control.
CuraDebt Tax uses a three-phase approach to solve tax issues. The first phase is investigation. After obtaining a stay on any enforcement, we collect all information and documentation necessary to obtain the best resolution on tax debt. Your current and projected financials are analyzed pursuant to IRS and/or State standards. A CuraDebt Tax professional will evaluate all statutes of limitations and determine whether you are eligible for any reasonable cause penalty abatements. All of these factors will be considered while formulating an individualized resolution strategy for your review.
The second phase of CuraDebt’s tax resolution process is compliance. We will make sure that there is no outstanding paperwork needed by the IRS. All returns must be filed and any necessary corrections must be made on already-filed forms.
The third phase is resolution. A CuraDebt professional will contact the IRS on your behalf in order to facilitate the settlement of your tax debt. We will follow-up if you are deemed ineligible for IRS penalty abatement and work to obtain the applicable waivers. CuraDebt will help you obtain the best possible result for settling your tax debts.
Ultimately, CuraDebt can help you develop the best strategy to resolve your individual issues with tax debt. Call 877-999-0486 for a free tax consultation or complete the form here.