IRS Penalty & Interest Abatement

IRS Penalty & Interest Abatement allows taxpayers to reduce or eliminate penalties and interest on their tax debt, provided they can show a reasonable cause for not being charged the penalty or full compliance and payment for the past two years. If circumstances beyond your control have made it difficult to pay or timely file your taxes, penalty abatement could be an option for you.

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What is IRS Penalty Abatement?

IRS penalty abatement is a form of tax relief that can significantly reduce or eliminate the penalties and associated interest added to your unpaid tax debt. These penalties typically are incurred when taxpayers miss filing deadlines or fail to pay their taxes timely. Through abatement, eligible taxpayers can request that the IRS waive these charges, often due to reasonable causes, such as illness, natural disaster, or financial hardship. When the IRS penalties are abated, the interest associated with the decreased penalty is also eliminated.

IRS Penalty & Interest Abatement (What You NEED to Know!)

IRS penalty abatement can reduce or eliminate penalties and interest charges on your tax debt, allowing you to quickly catch up on what you owe.

Benefits of IRS Penalty Abatement

Who can apply for Penalty Abatement with the IRS?

First-Time Penalty Abatement Qualifiers: Taxpayers who have timely filed and paid their past two years tax returns may qualify for First-Time Penalty Abatement.
Reasonable Cause Applicants: Taxpayers who can show that unforeseeable circumstances, such as illness or natural disasters, for their inability to pay, may be eligible.
Individuals Experiencing Hardship: If you faced a significant financial hardship that made you unable to pay or file your taxes, you might qualify for abatement.

How do I apply for Penalty Abatement with the IRS?

Submit a Written Request: You can request penalty abatement by submitting a written statement explaining your situation and reason for abatement.
Call the IRS Directly: You may also contact the IRS directly at 1-800-829-1040 to discuss your eligibility for penalty abatement.
Use Form 843: For certain types of penalties, you may need to fill out Form 843 , Claim for Refund and Request for Abatement.

Tips to Make Your Penalty Abatement Get Approved by the IRS

Provide Supporting Documentation: Submit documents, like medical records or insurance claims, to support the claims that you made in your request for IRS penalty abatement.
Show Good Faith Compliance: Being current on all tax filings and payments increases your chance of approval.
Seek Professional Assistance: A tax expert like Pink Harbor CPA can help you build a stronger case than you might be able to do on your own, thereby increasing the likelihood of success.

What Penalties and Interest does the IRS charge?

There are different types of IRS Penalties, the most common being:

1. Failure to File Penalty

If you file your tax return late, the IRS charges a Failure to File Penalty.” The penalty is typically 5% of the unpaid tax for each month a return is late, with a maximum penalty of 25%. Even if you can’t afford to pay the taxes due, you should always file your tax return timely. Doing so avoids the IRS’s Failure to File Penalty.

2. Failure to Pay Penalty

If you do not pay your taxes by the date the tax return is due, the IRS will charge a Failure to Pay Penalty. This penalty is .5% of the unpaid tax per month, up to 25% of the tax that is due. Note: If the IRS assesses both the Failure to Pay Penalty and Failure to File Penalty,” the IRS reduces the Failure to File Penalty” by the amount of the Failure to Pay Penalty.

3. Estimated Tax Penalty

The IRS will assess the Estimated Tax Penalty if you don’t pay your tax liability by the end of the period the tax return covers, AND you failed to do one of two things:

4. Accuracy Related Penalty

The Accuracy Related Penalty is assessed when BOTH of these criteria are met:

Due to a tax return being audited or voluntarily amended, the IRS determines the audited or amended return’s tax liability is substantially higher than the original return the taxpayer filed. The Accuracy Related Penalty is typically 20% of the underpaid tax. For the tax liability to be substantially higher, the new tax liability must exceed the greater of 10% of the tax liability on the original return, or $5,000, AND:
There was negligence or intentional disregard of IRS rules and regulations.

5. Frivolous Return Penalty

The Frivolous Return Penalty is assessed when the IRS believes that the tax return filed intentionally contained insufficient information to determine the correct tax liability or a tax return was filed incorrectly to delay or hinder a process. The Frivolous Return Penalty is $5,000.

6. Fraud Penalty

If the IRS believes that there was intentional tax evasion or fraud, it can assess a penalty of 75% of the unpaid tax. The Fraud Penalty is the most severe penalty that the IRS can charge. The IRS could also pursue criminal charges.

7. Interest

The IRS charges interest on unpaid taxes and penalties from the return’s due date until the tax liability and penalties are paid in full. The IRS interest rate is compounded daily and is the federal short-term rate plus 3%. It is adjusted quarterly.

Are IRS Penalties and Interest Tax Deductible?

No, IRS penalties and Interest are not tax deductible.

Will IRS remove penalties and interest?

The IRS will remove penalties and interest if the IRS either incorrectly assessed a penalty or if it were reasonable to believe that circumstances that led to the IRS penalty being assessed were beyond the taxpayer’s control. When an IRS penalty is reduced or eliminated, the associated interest is correspondingly reduced or eliminated.

When Filing Back Taxes, What Address Should I Use?

You should list your current legal address. The IRS will send you letters, documentation, and refund checks to the address you display on the tax return. You should never file a tax return using an address that you do not live at or cannot receive mail at.

Can IRS penalties be waived?

Some IRS penalties are automatically applied, and some are applied at the discretion of the IRS. IRS penalties which are automatically applied can be reduced or eliminated if the taxpayer can demonstrate a reasonable cause as to why the IRS penalty should be reduced or eliminated. An IRS penalty which is charged at the discretion of the IRS can be waived.

Is there an IRS penalty waiver sample letter?

Because every taxpayer has their own unique situation, there is no standard IRS Penalty Waiver Sample Letter. That is why the best practice to have an IRS penalty reduced or eliminated is to hire a reputable expert like Pink Harbor, CPA.

What is IRS Penalty Abatement Form 843?

IRS Penalty Abatement Form 843, Claim for Refund and Request for Abatement,” is used to request a refund of certain taxes or to ask for an abatement of interest, penalties, or additional taxes assessed by the IRS. IRS Form 843 is commonly used when there is a reasonable cause to reduce typical IRS penalties.

What is reasonable cause for IRS penalty abatement?

Reasonable Cause for IRS Penalty Abatement exists when taxpayers can prove that they exercised ordinary care and prudence, but circumstances beyond their control led to the penalty. The IRS will nearly always want to independent evidence to substantiate the assertions made by the taxpayer. For example, if a taxpayer states that they could not file a complete and accurate tax return by the due date because they were medically incapacitated, the taxpayer should attach medical records to the IRS Penalty Abatement Request which support the claim made.

Where to send abatement request IRS?

An IRS Penalty Abatement Request is generally sent to the address of the office that sent the penalty notice.