4 Situations Where Penalty Abatement Could Be the Solution

Individuals who do not comply with their tax obligations each year, or anyone who doesn’t file their taxes correctly, could find a penalty notice from the IRS in their mailbox. The IRS often imposes penalties without warning, so you don’t have the opportunity to explain your situation to them.

However, not all is lost. If you believe a tax penalty was imposed by mistake or you have reasonable cause, you can file a request for penalty abatement with the IRS. If you do this, they may eliminate or reduce the penalty.

Below, find four situations where penalty abatement could be the solution you need.

4 Scenarios Eligible for Penalty Abatement

1. Good Tax Compliance History

If you have an excellent tax compliance history, the IRS may be more lenient on you if you receive a penalty for late filing.  In certain circumstances, the IRS may agree that your good compliance history is reasonable cause and abate a late filing penalty

In order for this type of penalty to be abated, you must have filed the same return type for the past three years and not received any other penalties in those three years.

2. Serious Illness

If you find yourself in the hospital with a serious illness, or caring full-time for a family member that had a serious illness, you may be eligible for penalty abatement for a late filing penalty. You must be able to show that all business-related endeavors were restricted due to the illness.

For example, if a taxpayer was in and out of the hospital due to a severe stroke that left them incapable of working, penalty abatement would likely be granted. However, abatement would probably be denied if you claimed an illness such as cancer yet still worked or provided business services.

3. Natural Disaster

The IRS provides tax relief for victims of natural disasters. They have the qualifying situations listed on their website and a tax lawyer can help you through the penalty abatement process.

 4. Your Tax Professional Filed Incorrectly

If you hire an accountant and provide them with all the correct paperwork and documents, they’re responsible for filing correctly. So if you receive an accuracy-related penalty at the fault of your accountant, you may be approved for penalty abatement if you can prove that you relied on them to file your taxes.

How to Apply for Penalty Abatement

To apply for penalty abatement, you must send the request in writing to the IRS. You’ll need to fill out IRS Form 843 and include proper documentation to go with the request. The documents will change based on the situation of the claim. 

For example, if you were too ill, you’ll need to include your medical records and a letter from your doctor expressing why you couldn’t file timely.

It’s best to file your penalty abatement request within 30 days of when you received the letter or notice about the penalty. For certain cases, you can file the request later using IRS Form 843. 

However, if you paid the penalty partially or in full, there’s a statute of limitations that may limit when the penalty abatement request must be filed and the amount eligible for a refund. 

Common Misconceptions About Penalty Abatement

Many people believe that penalties are automatically negotiable because they heard that on some TV commercial. They are not! Some penalties you must pay no matter what, and the abatement process doesn’t happen quickly. Many penalty abatement requests take between six months and a year to be resolved.   

Lastly, as noted above, penalty abatement requests must be made in writing and be supported by evidence. So, always keep good records of important documents that could be critical to your taxes.

Trust a Qualified Tax Attorney to Handle Your Penalty Abatement

The IRS can be difficult to navigate on your own. If you file your penalty abatement incorrectly, you may not get a second chance to clear your name.

Do it right the first time with help from Mindy Meigs of the Law Office of James Casey. She has 15 years of experience as an IRS attorney and has handled more than 500 cases before the U.S. Tax Court. If you or your business feels overwhelmed by a tax penalty, contact us to see if you’re eligible for penalty abatement today.