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How to Qualify for Penalty Abatement

When you do not pay your tax bill on time, then your debt can exponentially grow through penalty charges and interest. As soon as the April 15 deadline passes, if you have not paid, the penalty charges start, even if you requested an extension to file your tax return. For many people, it is the penalty charges and interest that create the most significant impact on their ability to pay their tax debt. Some people qualify to get some or all of these charges removed so that they are only liable for the original tax debt through Penalty Abatement. If you want to apply for this tax relief solution, then you need to know about the requirements to see if you meet the criteria.

What are the Requirements for Penalty Abatement?

The IRS has no set rules as to the requirements to qualify for penalty abatement. They review each application on a case-by-case basis to see whether or not the person has a legitimate reason for not paying or filing taxes on time for a particular year. The main requirement is that there is reasonable cause as to the inability to pay on time, and the taxpayer has worked with “ordinary business care and prudence” to remain compliant. First-time offenders can apply for First Time IRS Tax Penalty Abatement with fewer requirements. As long as you have no prior penalties other than the estimated tax penalty and are otherwise compliant with your taxes, then you will most likely be approved under the First Time Abate program.

Because there is no steadfast rule as to what constitutes the qualifications for penalty abatement, you should expect to answer several questions from the IRS to prove your situation. An IRS agent will typically ask you several questions about the situation to better understand why it prevented you from filing your taxes. The IRS will also look to see if you have a history of paying late, and any history will negatively impact your chances of approval. Your finances will also be reviewed to see if there were other financial problems of which you took care of during the time. Any dates will be checked to ensure it corresponds with tax filing, and the IRS agents will also review whether or not the situation may have been anticipated or prevented. If you have any third party support, such as doctors notes, bills, insurance claims, and more, then you will want to present it to the agent to help your case.

What is Reasonable Cause?

The IRS assesses each case for reasonable cause for legitimately being unable to pay the tax bill on time for that year. There are many reasons that may fall under this, including:

  • Death of the taxpayer, family member, or very close friend that impacted the ability to pay taxes
  • Major illness or disability
  • Financial hardship or extended unemployment
  • The taxpayer being unavoidably absence, such as in prison, rehab, or held hostage somewhere
  • Fire, flood, or other destruction of the taxpayer’s records
  • Divorce or other civil disturbances interrupting a person’s ability to make deposits or payments
  • The inability to gather records for a reason beyond the control of the taxpayer
  • Bad advice from a tax professional, which must be proved
  • The IRS offered incorrect or erroneous advice in writing, person, or over the phone
  • Although an error occurred, it was done so while the taxpayer worked with “ordinary business care and prudence”

The statement “ordinary business care and prudence” is important. Almost any reason can be given as a reasonable cause for not being able to pay your taxes on time, as long as you can prove that you have taken care to try to be compliant.

Can Interest Be Dismissed?

Penalty abatement typically only applies to penalty charges and not to interest, unless you can prove that the IRS has erroneously charged you interest or the delays leading to the accruing interest was completely the fault of the IRS. If you have any role in the late payment, then you will be liable for the interest, even if the IRS decides to remove or reduce the penalty charges.

Because there is no hard and set rule in regards to penalty abatement, you have a good chance of being approved as long as you had a legitimate reason for not paying your taxes on time beyond forgetting or not having the capital, especially if you are a first-time offender. Working with a tax professional, such as the experts here at Fidelity Tax Relief, can increase your chances of approval. We can also help you find other ways to settle your tax debt and free you from the IRS. Call us today at 877-372-2520 to discuss your situation.

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