IRS penalty abatement is one way for taxpayers to reduce the liability they owe the Internal Revenue Service (IRS). Penalty abatement is relief for certain penalties if you have a good history of complying with tax laws or if you were prevented from meeting your obligations. If you have received notice of a penalty or another tax bill, it is important to act quickly to request penalty abatement.
What Is Penalty Abatement?
When you make an error on your taxes, the IRS may assess a penalty. Some penalties are assessed once, while others are assessed multiple times or until you correct the issue. In 2024, the IRS assessed penalties for individual, estate, and trust taxes, such as:
- Over 595,000 accuracy penalties
- 4 million failure to pay penalties
- 3 million estimated tax penalties
Ignoring penalties and tax debt can worsen the issue and lead to collection actions. This includes the nearly 197,000 liens filed by the IRS in 2024. Eventually, nonpayment could even lead to criminal charges.
Penalty abatement is one form of debt relief offered by the IRS for taxpayers to remove specific penalties. These penalties could be removed for one or more specific tax years, along with the interest accrued on those penalties. It can significantly reduce a taxpayer’s overall tax liability, making the remaining debt much more manageable to pay. In 2024, the IRS abated nearly 6.5 million civil penalties, totaling $75.2 billion.
The Types of Penalty Abatement
The two main types of penalty abatement available include:
- First-time penalty abatement
- Reasonable cause penalty abatement
There are also statutory exceptions, where relief is granted for specific situations, such as living in a federal disaster area or using incorrect written information provided by the IRS.
First Time Penalty Abatement
You might qualify for first-time penalty abatement if you have a good history of tax compliance, meaning you:
- File your required return for the past three tax years before the year with the penalty
- Have not been assessed any penalties in the prior three years, or if one was assessed, it was removed for reasonable cause or statutory exception
You must also meet qualifications like:
- In the past three years, you have not had four or more penalty waiver codes for the failure to deposit penalty
- A penalty for the failure to deposit was not assessed because of the avoidance of the electronic payment system
If you qualify, the penalty and its interest can be removed from your tax liability.
What Penalties Can You Remove Under First-Time Abatement?
First-time abatement generally applies to:
- Failure to file
- Failure to pay
- Failure to deposit
However, it also depends on the taxpayer and the type of return for which the penalty was imposed.
Reasonable Cause Penalty Abatement
A reasonable cause penalty abatement applies if you acted in good faith, but something outside your control prevented you from meeting your tax obligations, or you exercised ordinary care. Depending on the circumstances, it may apply to one or more tax years. The IRS reviews each case for reasonable cause, depending on its specific circumstances, to determine if you qualify.
What Penalties Can You Remove Under Reasonable Cause Abatement?
The penalties you can remove under reasonable cause penalty abatement depend on the type of reasonable cause you are filing for. You might be able to remove penalties like:
- Failure to file
- Failure to pay
- Accuracy-related penalties
- Information return penalties
What Is a Reasonable Cause for Penalty Abatement?
For failure to file or failure to pay penalties, you may qualify for penalty abatement if you used ordinary care but still were unable to file or pay. Reasonable cause could include:
- Fire
- Natural disaster
- Civil disturbance
- Inability to secure records
- Death in the immediate family
- Serious illness or unavoidable absence of the taxpayer or an immediate family member
- System errors that delayed an on-time filing
For accuracy-related penalties, the IRS considers whether you acted in good faith and with reasonable cause. The agency also considers the actions you took to report the issue, your knowledge of tax law, and the complexity of the issue.
FAQs About IRS Penalty Abatement Law
How Do I Get the IRS to Erase a Late Penalty?
You might be able to get the IRS to erase a late penalty under first-time penalty abatement, or through reasonable cause penalty abatement. If you have a good history of tax compliance and have not been assessed penalties in a set period of time, you could erase a late penalty under first-time abatement. For reasonable cause, you may need to show how something outside your control, like a family emergency or a natural disaster, prevented you from filing on time.
What Is a Reasonable Cause to Remove an IRS Penalty?
A reasonable cause to remove an IRS penalty will depend on the penalty and the specifics of your situation. For information errors, you may be able to show that you acted in good faith, depending on the complexity of the issue and the effort you put into paying the correct amount. For late penalties, events beyond your control may constitute reasonable cause. This may include an illness, a death in the family, a civil disturbance, or something else.
Can You Negotiate With the IRS to Remove Penalties and Interest?
Yes, you may be able to negotiate with the IRS to remove penalties and interest. Penalty abatement can directly affect specific penalties and any interest accrued. There are also other ways to resolve your tax debt and lower the amount you owe. Options like an offer in compromise or innocent spouse relief can lead to your debt being forgiven or resolved for less than you owe.
Should You Hire a Penalty Abatement Lawyer?
Yes, you should hire a penalty abatement lawyer, as this improves your chances of successfully securing penalty abatement and protecting your financial future. An attorney understands IRS penalty abatement laws and whether you qualify for one or more of these options.
Your attorney can also consider other forms of debt settlement, which could be more beneficial for you. If there are any issues with the IRS during the process, your attorney can protect your rights.
Contact Your Penalty Abatement Attorney
When you need a skilled attorney to file for penalty abatement or other tax debt relief, reach out to TaxSmith, LLC today.
