Apr 9, 2021 How Do I Request an IRS Penalty Abatement / Refund?

The IRS provides some relief options that a taxpayer can apply for to reduce or eliminate penalties and interest assessed.

This relief is known as the IRS Penalty Abatement application primarily for those who failed to file a tax return on time, failed to pay taxes or estimated taxes on time, or failed to deposit certain tax payments as required.

How Do I Qualify for an Abatement?

There are different standards applicable as a function of the type of penalty abatement application.

First Time Penalty Abatement Request

To qualify for administrative relief from penalties under the “First Time Penalty Abatement” policy, a sort of “Get-Out-of-Jail-Free” card, a taxpayer is required to satisfy the following conditions:

• The taxpayer was not previously required to file a return, or he or she has no penalties for the three tax years before the year when they received a penalty;
• The taxpayer filed all currently required returns or timely filed an extension of time to file; and
• The taxpayer has paid or arranged to pay any underlying tax due.

The first-time penalty abatement is in effect a “pass” for you if you previously filed and paid your taxes on time and hadn’t incurred any tax penalties in the past three years.

An estimated tax penalty in prior years will not affect your eligibility for a first-time penalty abatement.

When a penalty is reduced or eliminated, the related interest – the interest that’s charged on the penalty – will be reduced or eliminated correspondingly. If an unpaid balance is still on a taxpayer’s account, the interest will continue to accrue until his or her tax bill is paid in full.

What If This Isn’t My First Tax Abatement?

If a taxpayer is looking to get a tax abatement for the second, third time, or more, it’s a little more difficult than simply using the “Get-Out-of-Jail-Free Card” for first-time penalty abatement requests.

The IRS may provide a taxpayer with relief for reasonable cause. The determination of whether  a taxpayer qualifies for abatement is based on the totality of the facts and circumstances of a taxpayer’s case. The IRS will examine any reason that shows that a taxpayer used “all ordinary care and prudence” to meet his or her federal tax liability but was still not able to do so.

The IRS states that sound reasons, if established, include such things as the following:

• An emergency such as a fire, casualty, natural disaster, or other disturbances;
• An inability to obtain records;
• Death, serious illness, incapacitation, or the unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family; and
• Any other reason that shows that a taxpayer used all ordinary business care and prudence to file and pay.

Simply lacking the funds to pay taxes, by itself, is not considered reasonable cause for failure to file or pay taxes on time.

However, a taxpayer’s reasons for the lack of funds may still meet the reasonable cause criteria for the failure-to-pay penalty.

What Facts Do the IRS Need to Determine Reasonable Cause?

Some of the questions a taxpayer will be required to answer in this analysis include:

• What transpired to the taxpayer and when?
• What specifics kept the taxpayer from filing his or her return or paying taxes on time?
• How did these facts and circumstances affect the taxpayer’s ability to file and/or pay his or her taxes or perform other day-to-day responsibilities?
• Also, when these facts and circumstances changed, what did the taxpayer do to file and/or pay his or her taxes as soon as possible?

The taxpayer will need to produce evidence of the circumstances. He or she is going to have to provide the IRS with documentation such as hospital or court records; a letter from a doctor that proves the taxpayer was ill or incapacitated; or records showing the natural disaster, accident, or other events that prevented compliance.

Interest unrelated to the penalty assessment is not abated for reasonable cause. However, it can be abated in case of IRS errors or delays. Penalties can also be abated when a tax return was. Not filed timely, or where taxes were not paid timely, because of erroneous written advice from the IRS.

How Do I Apply for Penalty Abatement/Refund With the IRS?

The taxpayer must file an IRS Form 843, signed under penalty of perjury, in which he/she identifies the source of the penalties and/or interest charges assessed, computes the amount to be abated or refunded (if already paid), and provides an explanation as to why they believe their abatement/refund claim should be allowed.

So If I Didn’t File My Taxes Last Year, What Do I Need to Do?

If you are considering applying for an IRS penalty abatement/refund, whether it is the first time or not, you should contact an experienced team of tax attorneys like those at Ely J. Rosenzveig & Associates to assist you in this effort. They have a superb record of helping their clients secure substantial IRS penalty and related interest abatement/refund relief.

Our seasoned legal professionals can help you with tax questions, such as an IRS first-time or “reasonable cause” penalty abatement, as well as more complex tax issues like expatriate tax compliance, FBAR (Foreign Bank Account Reporting) filing requirements, and penalty relief, the Offshore Voluntary Disclosure Program, and streamlined filing for non-resident U.S. taxpayers.

Dealing with the IRS and the New York State Department of Taxation and Finance can be overwhelming on many levels. Work with someone who has the experience and proven skills to help you with your IRS or New York State tax issues.

Please contact our office at Ely J. Rosenzveig & Associates for a consultation. We may be reached at (914) 816-2900, or by email at [email protected].