“I sure wish I could pay just the tax I owe instead of all the penalty and interest charges on top of the tax?”
Have you ever had this thought? Well, you may be able to avoid the penalty if you have what’s called “reasonable cause” – more on that later. Interest is never abated by IRS unless you can prove there was a mistake made by the IRS. If you owed a tax but did not pay it by the due date, IRS charges interest on the outstanding amount until paid in full.
Back to the penalty abatement. IRM 184.108.40.206.1.2(2)b states:
“The reasonable cause exception … requires the taxpayer to show to the satisfaction of the Secretary that the failure to file or pay was due to reasonable cause and not due to willful neglect. Reasonable cause requires the taxpayer to demonstrate that he exercised ordinary business care and prudence but was nevertheless unable to file/pay within the prescribed time. Willful neglect involves a conscious, intentional failure or reckless indifference.”
There are specific situations where IRS will consider penalty abatement under reasonable cause. The case for a penalty abatement request must be a strong, fact-based case and well supported with third party documentation to be successfully granted.
Below are elements IRS will consider as reasonable cause as stated in IRM 220.127.116.11.2.
- Death, Serious Illness, or Unavoidable Absence of the taxpayer or someone in the taxpayer’s immediate family.
- Fire, Casualty, Natural Disaster or Other Disturbance – applies if the person requesting abatement was an “affected taxpayer.”
- Unable to Obtain Records
- Mistake was Made. Generally, a mistake does not provide a basis for reasonable cause, but the reason for the mistake may be a supporting factor claimed in conjunction with one of the other causes.
- Erroneous Advice or Reliance received from the IRS or a tax professional.
- Ignorance of the law
If the taxpayer has a strong, fact-based case supported by written evidence of a third party, then there is a fair chance that the penalty abatement request will be granted. The cost savings realized from a penalty abatement can be substantial.
If you believe there is reasonable cause for your penalty, we would be glad to discuss your specific facts and circumstances, then assist with your formal penalty abatement request. Just schedule a free consultation to find out more here Schedule Here.