Not all penalties are created equal, and this unequal treatment applies to penalty abatements as well. However, both the penalty for failure to file and the penalty for failure to pay are subject to penalty abatement.
What is Penalty Abatement?
Penalty abatement is a program that allows the IRS to forgive a tax penalty as a result of reasonable cause. The IRS might abate the penalty if the taxpayer can show that the failure was due to reasonable cause and not willful neglect.
What Happens if You Forget to File, Pay, or Deposit Your Taxes?
What is the penalty for failing to file your tax return? The penalty for failure to file is figured in the same way as the penalty for late payment. The non-filer must calculate the balance due and any interest owed, including a late payment penalty, if applicable.
If the total is as much as $100,000 or five percent of your adjusted gross income (AGI), whichever is greater, then the failure to file penalty is 20% of the unpaid tax.
The penalty for failure to pay is figured the same way as the failure to file a penalty. If the total is $100,000 or five percent of your AGI, whichever is greater, then the failure to pay penalty is 25% of the unpaid tax.
The IRS is often willing to reduce the penalties if taxpayers can show reasonable cause for the violations. There is a chance that the IRS will consider reducing the penalties or even waiving them entirely.
What are the Reasonable Causes for Penalty Abatement?
The IRS has a list of different reasonable cause arguments that you can use to demonstrate your reason for failure to file. The IRS has specific guidelines for each reasonable cause argument, and they are listed below:
- If you’ve recently experienced the death of a loved one;
- If you were sick, injured, and unable to work, resulting in unavoidable absence;
- If you recently experienced a fire, flood, or other disasters;
- If you are a victim of tax-related identity theft;
- If your delay in payment was due to reasons beyond your control, such as a riot, mail strike, and more;
How to Boost Your Chances of Applying for a Reasonable Cause
There are several ways that you can boost your chances of securing penalty abatement through reasonable cause. Although the IRS does not offer specific guidance on how to give the best possible case for penalty abatement, there are certain steps you can take to better your chances of success.
1. Be Detailed as Much as Possible
When submitting a reason for penalty abatement, keep in mind that the IRS is looking for a reason that justifies your actions. Being detailed about your incidents can help the IRS see that you were dealing with a tough situation and that you made an effort to resolve it.
2. Provide Proof
Include in your penalty abatement petition all documents that provide facts, figures, and testimony to back up your claim. This includes receipts, email messages, letters, and anything else that can serve as evidence.
3. Proof of Prior Compliance
If you have filed on time in the past, you can use your prior compliance as evidence for a reason for penalty abatement. The IRS would be unlikely to waive penalties for someone that has a history of failure to comply, so it is important to demonstrate that you have a clean tax record.
The Bottom Line: Reasonable Causes for Penalty Abatement
If you are facing a tax penalty, it is understandable that you feel frustrated with the IRS. There are several reasonable causes for penalty abatement that you can use to argue for a reduction or waiver of the penalty.
Be sure to submit a detailed and personal application for penalty abatement, along with any supporting documents to help the IRS understand your situation.
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