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If your tax payments are past due, penalties will be assessed and interest will continuously accrue. Because penalties and interest are seen as part of your overall tax liability, it is extremely difficult to get the Internal Revenue Service (IRS) to agree to forgive them or reduce them. It is generally not useful to break your federal tax liability down into what you "really" owe and the penalties and interest commuted on that amount. Nevertheless, the IRS has specific procedures to follow when the penalties and interest it has imposed are genuinely disputed.
In most instances, the most effective way to reduce the interest and penalty component of overall tax liability is to reduce the underlying tax debt by means of an Offer in Compromise or Partial Payment Installment Agreement, both of which require a demonstrated inability to pay in full. Because interest and penalties are based on the amount you owe, a reduction in underlying debt will lower the interest and penalties as well.
The IRS will evaluate numerous factors when determining whether to abate assessed penalties such as your tax payment history, the reason behind your failure to pay, and the amount of time it took you to come into compliance. If you have a reasonable cause for failing to timely pay your taxes, failing to file a return or filing an inaccurate return, the IRS may agree to waive the associated penalties. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations. The IRS employee is instructed to consider the following:
Reasonable cause for failure to pay or file may include:
Forgetfulness, ignorance of the law, lack of funds and constitutional objections to tax obligations are not valid objections upon which the IRS will abate penalties.
Taxpayers who have never had prior problems with the IRS may be able to benefit from the little-known First Time Abatement Rule. "First Time Abate" (FTA) is an "Administrative Waiver" rather than a true abatement for cause. If the taxpayer has not previously been required to file a return or no prior penalties have been assessed against that taxpayer for the preceding three years, he or she may request a penalty reduction in writing. If the taxpayer is not currently in compliance but all other FTA criteria are met, the IRS may provide the taxpayer an opportunity to fully comply before considering reasonable cause. An FTA is only available for a single tax year – if three years' worth of penalties are at issue, two will be subject to regular IRS criteria.
Obtaining IRS penalty relief is difficult even when compelling circumstances can be shown. Joseph R. Viola is a Philadelphia tax lawyer well-versed in IRS procedure as well as federal tax statutes and regulations. He can evaluate whether you have a viable case for abatement or some other form of relief and guide you through the abatement process. Contact Joseph R. Viola to schedule a face-to-face consultation.