Tax Penalty Abatement: How to Get IRS Penalties Reduced

Tax penalty abatement is the process of reducing or removing penalties assessed by the IRS as a result of late or misfiled taxes. Abatement does not remove the responsibility you have to pay the tax that was underpaid, paid late or missed in the past. Instead, you will be able to lift only the assessed penalty. Since the penalty can be very high, as much as 25 percent on late income tax filing, for example, it is beneficial to seek abatement if you feel you qualify.

Step 1: Review the Terms of the Penalty

The first thing you will do is review the terms of the penalty that was assessed to you. It is very important to understand the penalty because you may be able to remove it in part or in full simply by rescheduling the way you file your taxes. For example, a company must pay payroll taxes on employee paychecks. If the company underpays one cycle, the taxes paid the next cycle will go toward this balance. This means the subsequent payment will also be low. By applying a new tax payment to cover the balance from the time it was first owed, an employer can stop the cycle. By specifying where to apply the payment, the company has reduced the penalty.

Step 2: Gather Any Proof of IRS Error

If you have asked the IRS for assistance or a response to your tax questions, gather all the information you received from the IRS. Any error in this information is grounds for a complete abatement of your penalty. For example, if the IRS granted you an extension and then penalized you for filing late, proving the extension was granted will lift the penalty. An error on behalf of the IRS is the single scenario that will guarantee abatement.

Step 3: File an Abatement Form

An abatement form can be obtained from the IRS. This form should be submitted in addition to any materials you are providing. For example, if you are seeking abatement because you filed late, submit the form, your completed tax forms and your year-end tax payment all at once. If the terms of your abatement are accepted, your final payment will be all that is required to close the case against you. You will be notified in writing within a few weeks regarding whether your request for abatement was accepted. You can seek abatement for nearly any reason, but it is not always guaranteed to be approved.

Step 4: Ask for Relief

If the penalty you face is so high it threatens your ability to lead a comfortable life, you may have grounds for abatement based on this factor. An IRS debt is a senior debt; this includes all IRS penalties. As a result, it is not likely to be dismissed in bankruptcy court or through another legal system. However, if you hire a good attorney, you may be able to have at least the penalty lifted by promising to meet payments you owe. You may even succeed in securing a payment plan without interest.

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