If you are making a good faith effort to pay back the taxes you owe and get back on track with the IRS, consider asking for a IRS penalty abatement to reduce your final tax liability. Penalties are the additional fees that are assessed on your taxes, based on how much you owe, for every month you are behind in payments. The penalties are charged in addition to the interest that is also compounded on past-due taxes.
Obviously, accumulating interest and penalties can double or even triple the amount of back taxes you owe over time, making it increasingly more difficult for you to pay off your debt. But you can get some relief from a penalty abatement once you begin an effort to make at least a partial payment on your outstanding debt.
Who Can Get a Penalty Abatement?
The IRS does not automatically grant a penalty abatement, but it will always consider granting one for a taxpayer who is working hard to pay off their outstanding debt. Once that has been established, a few other criteria need to be met:
Reasonable Cause must be shown as to why the taxes weren’t paid on time. In other words, you need to be able to explain why you didn’t pay the taxes by the original deadline, and it must be an acceptable reason. Fortunately, the list of acceptable reasons for a penalty abate is long and includes a natural catastrophe such as a fire or flood of your home, a difficult divorce that impacted your finances adversely, a long stretch of unemployment, a death in the family or a long period of illness, bad advice from an accounting or tax professional and many others.
You must also provide proof that you practiced due diligence in trying to repay your taxes. This might include setting up a payment plan, submitting an initial payment with an Offer in Compromise or making a partial payment. The IRS is more willing to give a penalty abatement to those who have made a few payment attempts and stuck with them.
Lack of neglect in trying to resolve your tax liabilities. Don’t apply for a IRS penalty abatement before you address the back taxes themselves; you won’t get it. The IRS wants to know that they will get some kind of payment from you before they grant you any forgiveness.
Penalty abatement can save you hundreds or even thousands of dollars on past-due tax bills. For this reason, it is very important to make sure you apply for it. The best way to proceed is to find a quality tax representative who is familiar with IRS tax penalty abatement and other issues to represent you every step of the way.