IRS Penalty Abatement: Five Concepts

IRS Penalties are Designed to Foster a System of Voluntary Compliance

The IRS itself publishes that penalties are not designed to punish taxpayers, but instead are intended to promote and facilitate a system of voluntary compliance with the tax laws. If a taxpayer ignores his obligations and is reckless, the IRS will stick that taxpayer with a penalty. But when a mistake is made, and the taxpayer generally acts in accordance with the law, the IRS is often amenable to abate or remove penalties.

The problem occurs with computers. A computer is not an emotional being and simply reacts based on a mathematical formula. In an effort to save on human capital the IRS employs computers to automatically send penalty notices that are simply based on numbers and lacks any feelings of empathy. This is why in 2009 the IRS assessed over thirty six million penalties against hard working Americans.

Penalties can be removed or Abated by the IRS

Congress is aware that the tax code is vast and complex and the complexity causes many people make mistakes when trying to comply with their taxing requirements. As such, Congress enacted laws to allow the IRS to abate or remove penalties. In response, the IRS published voluminous guidelines on how they deal with penalty matters and abatement requests. One of the most prominent and talked about reason for abating IRS penalties is known as reasonable cause. 

Reasonable Cause to Abate IRS Penalties

Courts have held that reasonable cause is determined from all the facts and circumstances to decide if the taxpayer exercised ordinary business care and prudence.  This is where a taxpayer made provisions for business obligations based on reasonably foreseeable events. When it can be shown that the taxpayer took the same degree of care as an ordinary person, but nevertheless failed to comply with the law, ordinary business care and prudence is established. 

Other Possible Reasons for IRS Penalty Abatement

Even though the circumstances or a statute does not allow for relief under reasonable cause, there are other reasons the IRS may abate a penalty. For example, the IRS can abate penalties if there is a death in the family, serious injury, or unavoidable absence. It is also possible to abate a penalty if a taxpayer can show undue hardship, which requires more than hardship, but a substantial economic loss if forced to pay.

Improve your chances of IRS Penalty Abatement by Hiring a Professional

A tax controversy professional is a person whose occupation it is to interact with the IRS regarding disputes with taxpayers. There are many different kinds of tax disputes, but one of them is over penalty matters.

A taxpayer with penalty issues should hire a tax controversy professional because history has shown that their experience in dealing with the IRS, the tax code, and complicated legal matters has proven to be successful in achieving positive results. The professional can convey to the IRS what happened, what the law requires, and what steps the IRS should take to comply with the law so a just result is achieved. Many taxpayers hire professional accountants to prepare their returns, but when things go wrong, a tax controversy attorney can ensure that matters don’t get worse and help guard against their client paying any unneeded penalties, interest, or taxes.