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Can You Get Rid of IRS Penalties?
If you owe the IRS for unpaid taxes, you
already know that the penalties are quite severe and often exceed the actual tax due. But,
the big question is, what can you do about them? First, let's understand how penalties are
assessed. As much as you may wish to blame the IRS, penalties are there because Congress
writes a bill and the President signs it into law. Second, almost all penalties are
assessed automatically by the IRS computer system. It is only on audit cases that certain
penalties are determined by an individual. Third, some penalties are erroneously assessed,
but the majority are correct.
If the penalties assessed against you are correct, can you still get them abated? Yes, if you meet the IRS criteria for reasonable cause. What constitutes reasonable cause to me and you may not seem reasonable to the IRS. Some tax firms advertise that they will get all the penalties (and interest) abated. Don't believe it. Anyone that can tell you what will happend without knowing all the details of your case is probably a con artist whose job is primarily to separate you from your money.
In fact, I have had excellent success with penalty abatements, but largely because I don't do very many of them. Each IRS office is very different in their approach to penalty abatement. Some don't dismiss any of them no matter how good your reasons may be. Others are far more lenient and have even surprised me with their decisions. The question you want answered is "what does the IRS consider to be reasonable cause?"
It's much easier to give you examples than a simple answer. One case recently involved a business that filed a corporate income tax return late. They paid the tax in full when the filed the return, but they incurred a $10,000 late filing penalty. After reviewing their records, I discovered that they had never filed late and never owed any income tax. Even though they clearly filed the return late, the IRS agreed to abate the entire penalty because of their excellent history.
My first successful penalty appeal involved a client with serious mental problems. She failed to deposit payroll tax money even though the money was sitting in the bank account. Through an exhaustive review of her medical records (provided to me by the client), I found that her medications made it nearly impossible to function. Though it took a great deal of effort, we were able to get $25,000 in penalties wiped out.
I will only take a penalty abatement case if it has real merit. To do otherwise, is a ripoff of you, the client. Be very careful before you pay anyone to handle a penalty appeal and be certain the tax pro has experience and a complete history of your problem before you give them a penny.