There are a few penalties the IRS charges that can be removed, including the IRS failure-to-file penalty – which is the most common and harshest of IRS penalties – and the failure-to-pay penalty.
Failure to File Penalty
Many people think that if they can’t pay for the taxes they owe, their only option is to hide from the IRS. There are a number of options for people who can’t afford to pay the taxes they owe, such as setting up payment plans, but hiding is your worst move! The IRS failure-to-file penalty charges 10 times more than the failure-to-pay penalty. At the very least, file your taxes on time even if you owe money to save yourself a lot of money in fees!
About 33% of penalties charged by the IRS are later removed. The IRS will remove penalties if you have reasonable cause – or a valid excuse for not filing your taxes before they are due. When the IRS removes a penalty, its called Penalty Abatement and if you’ve been charged IRS penalties, you may want to look into filing a penalty abatement to see if you qualify.
Failure to Pay Penalty
Out of more than 140 different penalties the IRS can charge, the failure to pay penalty is one of the most common. When people don’t pay their taxes on time or don’t pay them in full without first setting up an installment agreement – a penalty is charged. Penalties are meant to scare people into following the laws, but the IRS realizes there are legitimate reasons when people are unable to pay their taxes on time.
If you have a reasonable cause for not paying your taxes, the IRS will often remove the failure to pay penalty if you file for a penalty abatement. Tax penalties are automatically imposed on individuals who don’t pay on time, but filing a penalty abatement allows your situation to be reviewed by a real person, and the IRS will analyze each on a case by case basis to determine whether or not to remove penalties.
How to File for a Penalty Abatement
There are three ways to file for an abatement to remove penalties:
- Send a written request to the IRS explaining why you were penalized and why you feel you should be relieved of the penalties. Request a refund of the penalties.
- Request an oral interview if you’re unable to clearly state your case in writing and then explain your case verbally.
- Use IRS Form 843, the claim for refund and request for abatement form provided by the IRS.
Regardless of the method you choose, you want to provide as much information as you can, and include documentation if possible.
If your penalty abatement request is approved, you’ll be able to eliminate most (if not all) of the penalties but not any interest that has accumulated. Penalty abatement is a good option for people who can pay their tax liability but feel they shouldn’t be liable for the IRS penalties. Some of the common reasons for obtaining approval for an abatement of IRS penalties may include:
- Divorce
- Illness
- Incarceration
- Natural disaster, such as hurricane, tornado, flood, etc
- Death in the family
- Theft or destruction of records
