IRS and Penalty Abatement

Penalty abatement gives you the opportunity to plead your case to the IRS. Unlike most other claims for debt relief, abatement puts a very human face on your case, which certainly can work for your best interest. Penalty abatement relieves you of some or all of the penalty fees you have incurred, and can be a saving grace for those who can explain adequately their failure to pay taxes.

Penalties are a big part of IRS tactics. Some estimates put IRS penalties for 2005 at more than $15 billion! It makes sense that with large amounts money on the line, the IRS will try to get whatever it can.

However, widespread knowledge of taxpayers’ financial suffering is bad for business, so the IRS probably is willing to listen to your case. If you wish you get penalty abatement, you must simply be persuasive about how your tax problem got out of hand.

There are three ways to present a case for abatement. A written petition is the most common way, in which you state your case in just a few written paragraphs. If for some reason this is not practical, you may request a verbal interview. Lastly, you can present a shortened statement of your case with Form 843.

Whichever method you choose, you should explain through logic and reason that it was impossible for you to pay. It is difficult to predict the result of your appeal – sometimes the IRS surprises – but logically convincing arguments should give you a good chance for abatement.

Decisions are made on an individual, case-by-case basis, which is very encouraging. “Reasonable cause” can be anything that you make it. In fact, IRS guidelines generously suggest that abatement should be “generally granted when the taxpayer exercises ordinary business care and prudence” in trying to pay their taxes.

Did the defaulting taxpayer make efforts to fix the problem? When taxes were due, did the taxpayer promptly notify the IRS of a problem and pay what was practical? Since the default, how has the taxpayer conducted him- or herself? Your best proof is documentation. Try to establish what went wrong on paper through correspondences and notices.

Keeping in mind that individual circumstances are very important, there are some instances in which abatement is granted frequently:

• Was your business the victim of crime (especially embezzlement)?
• Did a natural disaster damage your ability to make money to pay taxes?
• Were you records destroyed through no neglect on your own part?

As in all cases of tax debt, beware of scammers who make promises of relief before even looking at your case. Most reputable lawyers will provide either a low-cost or free consultation before telling you your chances of success.

No matter how well you state your case, the IRS appeals officer assigned to your abatement request will have some hard questions for you. The officer probably will look at your history of paying taxes. Is this just another attempt to get out of paying? Have you paid your other creditors, while choosing to just ignore your taxes? State your case objectively and persuasively from many different angles and leave no room for question. If you do this, you have done all you can and likely will be granted penalty abatement.