Penalty Adjustments and Penalty Waivers
The assessment of penalties and interest are methods designed by the IRS and State Tax Agencies to encourage the timely filing and payment of taxes. These charges are imposed when a taxpayer fails to meet a filing deadline or fails to pay a tax amount when it is due. The assessment of a tax penalty is announced through an IRS Letter, an IRS Notice or a similar written notification from a State Tax Agency. The notice must include the name of the penalty, the reason the penalty is being assessed and an explanation of how the penalty amount has been calculated. The IRS Notice and the IRS Letter as well as notices issued by State Tax Agencies are computer generated so often errors occur. It is therefore important to verify that the reported penalty amount is correct before making payment or proceeding with any type of tax settlement procedure.
Since the accumulation of penalties and interest can represent a significant portion of an outstanding tax liability, obtaining a penalty waiver is often one of the most productive and efficient tax settlement options available. That being said, penalty waivers can be difficult to obtain. As with other tax settlement options, they are only granted under certain very specific conditions and they require strict documentation that those conditions have been met.
Normally, a penalty waver will be granted only under a condition that is called Reasonable Cause Relief. In order meet the requirements of Reasonable Cause Relief, the taxpayer must show (1) that tax filing deadlines were not met or tax payments were not made as the result of some circumstance that was beyond their control and (2) that they took reasonable steps to counter the effects of the uncontrollable event and were still not able to file or pay their taxes.
The short list of events that may satisfy the requirements of Reasonable Cause Relief includes (1) a serious illness or death, (2) a fire, casualty or other natural disaster, (3) the inability to obtain tax records, (4) incorrect advice from a tax professional or (5) incorrect advice directly from the IRS.
In order to obtain a penalty waiver from either the IRS or a State Tax Agency, the taxpayer or their tax settlement representative must first submit a written request for the abatement. Following this, the taxpayer must meet the burden of proof that they acted in a responsible and prudent manner and still were unable to meet their tax obligations. The required burden of proof falls under the following three main headings:
- The Uncontrollable Circumstances
– What events happened?
– When did the events occur?
– Were the events such that they could not be controlled or anticipated?
– How did the events prevent the taxpayer from filing or paying the taxes?
- The Correlation Between the Uncontrollable Circumstances and the Late Filing or Payment
– Did the taxpayer take steps to mitigate the effects of the uncontrollable circumstances?
– How were other financial affairs handled during the time period in question?
– Did the taxpayer pay creditors other than the IRS or State Tax Agency during the time period in question?
– Is there a direct correlation between the uncontrollable circumstances and the late filing or payment of the taxes?
– Did the taxpayer have a previous record of either late filings or late payments?
- The Supporting Documentation
– Is the provided documentation sufficient to show that the conditions for Reasonable Cause Relief have been met?
– Was the documentation provided by an objective third party?
Since penalties are assessed for the purpose of enforcing compliance and creating fairness within the tax system, they are normally waived only when Reasonable Cause Relief can be documented according to the criteria described above. The procedure for obtaining an abatement of tax penalties is specific and complex and may require the assistance of a qualified tax settlement professional.
If you have been assessed penalties due to an existing tax debt, we can help you determine whether the assessed penalties are accurate and whether you meet the qualifications for a penalty waiver. Our experienced tax settlement professionals can also help you submit your penalty waiver request according to established IRS or State Tax Agency guidelines. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.