The IRS is the most rigid lender you have. Unlike ‘optional debt,’ everyone must pay their dues to the IRS, and the IRS takes tax debt and delinquency very seriously. And they should—hundreds of millions of people dutifully pay their taxes every year. Still, hard times can befall anyone, and an Offer in Compromise is not a feasible option for everyone. Through penalty abatement, you may be able avoid penalties on your overdue taxes.
- Penalty abatement will reduce the overall balance you owe the IRS. The taxpayer incurs penalties when he or she fails to pay their taxes on time or the have failed to present a clear picture of their income to the IRS. Penalties can become costly—especially for the taxpayer who is already heavily burdened with IRS debt.
- Penalty abatement accepted by IRS on case-by-case, reasonable basis. The IRS doesn’t have a uniform code for penalty abatement. In theory, the IRS may allow for penalty abatement for just about anything. However, reasonable cause dictates that only a handful of situations are worthy of penalty abatement, like death in the family or the destruction of taxpayer records.
- Reasonable cause is usually established when the IRS has been negligible in their accounting, or assessment of penalties or interest on taxes. It can also be established in cases where a taxpayer could not properly assess their IRS debt because of a lack of tax information or records. In other words, the taxpayer could not possible properly file their taxes because an act of God put it outside their responsibility.