Avoid Tax Penalty With an IRS Penalty Abatement Letter

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Of course it’s best to avoid incurring IRS tax penalties but if you get saddled with any, the best way to get out of having to pay is so obvious it’s often overlooked: Just ask! The IRS has a “Penalty Handbook” describing various penalties that may be assessed against taxpayers. In addition, the Handbook also contains little known loopholes that can be used to ask for a reduction or elimination of penalties. The IRS Penalty Handbook is available to taxpayers on the IRS website at: http://www.irs.gov/irm/part20/. You may be able to avoid tax penalty with an IRS penalty abatement letter.

There are over 100 potential penalties that might be asserted against a taxpayer but the majority of penalties fall into two groups. There are collection related penalties and there are accuracy related penalties. The most common collection related penalties are: Late filing up to 25% of the unpaid taxes of the return; late payment up to 25% of the unpaid taxes; and late federal tax deposits up to 15% of late deposits. The most common accuracy related penalties are: Negligence penalty up to 20% of the understated taxes; and substantial understatement penalty up to 20% of the understated taxes.

For taxpayers who have not had a previous delinquency, the IRS may apply a “First Time Abatement Rule.” However, when considering non-assertion or abatement of penalties the IRS generally applies a “Reasonable Cause” standard. Favorite IRS reasons for reducing penalties include:
• Death, Serious Illness, or Unavoidable Absence
• Fire, Casualty, Natural Disaster, or Other Disturbance
• Unable to Obtain Records
• Mistake was Made
• Ignorance of the Law
• Forgetfulness
• Statutory Exceptions or Waivers
• Undue Hardship
• Written Advice From IRS
• Oral Advice From IRS
• Advice from a Tax Advisor
• Official Disaster Area
• IRS Error

When asking the Internal Revenue Service for non-assertion or abatement of penalty, greater success is had when everything the IRS wants to see gets into the penalty abatement letter. For instance, according to FORBES IRS Tax Watch and KINGS TaxGram, taxpayers who reference the appropriate section of the IRS Penalty Handbook have a much greater chance of success than those who merely submit a statement of facts to support their request for reduced penalties. So, you may be able to avoid tax penalty with an IRS penalty abatement letter. But of course, this information is not “tax advice.” If you have any questions about this information you can contact your tax advisor or the Lloyd Cohen Law Offices www.LloydCohen.com (614) 444-4211.


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