If you have the right reasons for not paying your taxes, you may be able to request a waiver of penalties and interest. Penalties for failure to file a tax return, failure to pay taxes and failure to deposit certain taxes as required may be eligible for relief.
Types of tax penalty relief
Different categories exist for tax penalty relief, depending on why you received a penalty: reasonable cause; first-time penalty abatement, administrative waiver; and statutory exceptions.
In each case, you need to gather documentation showing why you should receive tax penalty relief and it may be important to have help in portraying facts in a favorable light with persuasive legal arguments applying the law to the facts.
At Fortress Tax Relief, every case is handled personally by a licensed attorney who only practices back tax resolution. Fortress Financial represents clients throughout the country and tackles issues involving the IRS for them.
Reasonable cause
The most prevalent reason for tax penalty relief is reasonable cause. If you ask for a waiver for a reasonable cause, you need to provide the reason and produce documentation to back it up. Serious disturbances, fires, casualties or natural disasters count as reasonable causes.
If you’re hit with a devastating fire or extreme weather, your business would qualify for tax relief. If your business was in a riot zone and was blocked off by police tape, this would qualify as a serious disturbance. Serious illness, incapacitation or death is also considered a reasonable cause.
A lack of funds, unless it’s due to a reasonable cause, or forgetting to file does not count as a reasonable cause. You need to exercise ordinary business care and prudence to meet your tax obligations and still be unable to meet tax obligations in time.
The IRS wants to know what happened and when it happened. They want all the facts and details of the circumstances that prevented you from filing or paying on time.
First-time penalty abatement
If it’s the first time you’ve failed to file or pay on time, you may be able to receive a first-time penalty abatement. This penalty applies if you were not required to file a return or you had no tax penalties in the three tax years before the year in which you received the penalty.
It also applies if you filed all current forms or filed for a time extension to file and if you have paid, or arranged to pay, the tax that’s due.
Statutory exceptions
If you receive incorrect written advice from the IRS, you may receive a statutory exception. In such a case, you must present your written request for advice and the incorrect advice you were given. You also need to provide a report of the tax adjustments that identify the penalty to your tax and the items relating to use of the erroneous advice.
Interest relief
There is no interest relief in cases of reasonable cause or first-time penalty relief. You keep accruing interest and if penalties are reduced, related interest is also reduced.
Proving entitlement to tax penalty relief
The burden of proving entitlement to tax penalty relief rests upon the taxpayer. The preparation of a compelling penalty abatement request is similar to preparing a legal brief and tax attorneys are well-suited to this.
When deciding whether to hire a professional, it’s worth considering the penalty amount and weighing this up against the professional fee. Ultimately, it’s the IRS that decides whether you have established reasonable cause, although using a tax pro may significantly improve your chances of receiving tax penalty relief.