Appealing IRS Tax Penalties

Any kind of mail received from the IRS, with the exception of your long-awaited tax refund, can be a disturbing experience. It could likely be that you didn’t file your taxes on time, or maybe you have an outstanding tax bill that needs immediate payment. Either way, the IRS has hunted you down and attached a nasty penalty on your account. Fortunately, the IRS offers taxpayers a chance to challenge tax penalties and seek relief. We’ll walk discuss the types of common IRS tax penalties, how to appeal IRS penalties, and how to get IRS penalties waived.

What Types of IRS Tax Penalties is Eligible for Relief?

There are practically 150 tax penalties listed in the Internal Revenue Code, however, 74% of all tax penalties issued annually narrow down into three dominant penalty types: failure to file, failure to pay, and failure to deposit. Each of these three common penalties is also qualified for relief.

Failure to File

The Failure to file a tax penalty is issued to taxpayers who neglected to file their taxes on time or file taxes altogether. The IRS is authorized to assess and distribute Failure to File penalties anytime beyond the date your taxes are due, and the sum of the penalty is either tacked onto your total outstanding tax bill or deducted from the refund the IRS owes you. The present Failure to File penalty is 5% (4.5% late filing fee and 0.5% late payment) of the unpaid tax for each month that your return is late. This penalty maxes out at 25% but will continue to accumulate until the balance is paid. In a situation whereby you file more than 60 days after the deadline, the minimum penalty is either 100% of your outstanding tax balance or a specific dollar amount that is adjusted annually for inflation—whichever is the lesser. If you are unable to file your taxes by Tax Day, there are procedures you can take to prevent facing the dreaded wrath of the IRS. Requesting a tax-filing extension can save you the headache and financial burden of a Failure to File penalty by giving you an extra six months to collect your documents, prepare your taxes, and submit to the IRS. It’s essential to note that while an extension gives you additional time to file, you will still be expected to pay your taxes by Tax Day. Neglecting to do so will lead to a Failure to Pay penalty.

Failure to Pay

This penalty is charged to those who do not pay their taxes on time, in full, or at all. The current Failure to Pay penalty ranges from 0.25% to 1% of the unpaid tax amount, depending on your circumstances. Here’s how the IRS breaks it down: Ø The 0.25% penalty is applicable to individual tax filers who have elected to repay their debts through an installment agreement. Ø The standard penalty is 0.5% Ø The 1% penalty applies to individual filers who have not paid their outstanding balance within 10 days of a notice of intent to levy. Ø Each of these penalties is imposed on each month that the tax goes unpaid but maxes out at 25% of the total tax you owe.

Failure to Deposit

The IRS sends a letter to all businesses with employees detailing their federal tax deposit schedule to ascertain each business is made conscious of their federal taxpaying responsibilities. Employers are required to withhold specified amounts from their employee’s paychecks in order to cover federal income, Social Security, and Medicare taxes, and the sum of the money withheld must be deposited on the aforementioned IRS-distributed schedule. If you ignore to deposit by the designated deadline, the IRS will impose a Failure to Deposit penalty. This penalty also applies if the amount paid is incorrect or if the deposit is filed in an incorrect way. It is up to the business to assess the value of their combined employee’s withholding, adhere to their deposit schedule, and transfer the funds electronically to the IRS.

Failure to Deposit rates are as follows:

· 2% for 1-5 days late · 5% for 6-15 days late · 10% for 15 days or more late · 10% for deposits not made electronically What are the Different Types of Tax Penalty Relief? There are three categories of penalty relief offered by the IRS; reasonable cause, penalty abatement, and statutory exception. Depending on your particular situation, you may qualify for a reduction or total elimination of penalty fees under valid circumstances.

How to Get IRS Penalties Waived or Appealed

To dispute IRS penalties, you’ll first need to recognize which type of penalty relief applies best to your case. Use the guide below to help steer you in the right direction.

Reasonable Cause

Reasonable cause is personified by circumstances out of your control that prevented you from taking care of your taxes in a timely fashion. While forgetfulness will not hold up in the eyes of the IRS, there are a number of other lawful occurrences that would qualify for reasonable cause, including: · Fire, natural disaster, or other serious disturbances count as reasonable cause. · Inability to get pertinent records · Death, serious illness, incapacitation of the taxpayer or an immediate family member

How to Apply for Reasonable Cause Relief

If you believe you qualify for penalty relief due to reasonable cause, you must offer enough supporting documentation to defend your request. Additionally, when piecing together your request, be certain to only include relevant information that keenly details the reasons why the event was unforeseeable and how you took reasonable steps to obey to the best of your ability.

Penalty Abatement

IRS penalty abatement is an administrative waiver structured to offer taxpayers relief from Failure to File, Failure to Pay, and Failure to Deposit penalties if specific criteria are met. Taxpayers who have a clean taxpaying history aside from may qualify for first-time penalty abatement (FTPA) so long as this is their first issuance of a Failure to File, Failure to Pay, or Failure to Deposit penalty. In the eyes of the IRS, everyone is entitled to one mistake, and first-time penalty abatement accommodates it. The first-time penalty abatement applies if the following are true of your situation: · You weren’t beforehand required to file a return or have no charged penalties for three tax years prior to the tax year in which you received the penalty. · You have filed all required forms or filed an extension of time to file. · You have paid, or arranged to pay, any outstanding tax balance.

How to Apply for Penalty Abatement Relief

To request penalty abatement, you can put a call through to the toll-free number on your IRS notice or send a written request directly to the IRS. If you have a tax professional on retainer, they can call the compliance unit to request an FTPA for you. Should you decide to go the written request route, ensure you provide other persuasive penalty relief arguments, including reasonable cause, to increase your chances of approval and success. If you choose a phone call request, be sure to make note of the IRS agent’s name, number, and instructions.

Statutory Exception

If you received incorrect written advice from the IRS that resulted in a penalty, you might qualify for statutory exception relief. You will need to present supporting documentation to secure your case, including the following paperwork: · Your written request for advice · The incorrect advice you relied on provided by the IRS.

How to Apply for Statutory Exception Relief

In order to dispute an IRS penalty due to statutory exceptions, you will need to file Form 843: Claim for Refund and Request for Abatement. You can call the toll-free number listed on your IRS notice to speak with an agent.