Reasons to Abate Penalties

If you have tax debt, you're aware that your bill keeps increasing due to penalties and accrued interest. Paying the initial tax debt was hard enough, and it will be more difficult with the additions. Know that the IRS computer system adds the penalties to your bill. It means that the IRS doesn't consider your personal situation. This IRS issue may be addressed with certain options.

Reasonable Cause

The IRS can eliminate or reduce the penalties if you can show reasonable cause. What does reasonable cause mean? Reasonable cause is defined by the IRS as relief granted often when the taxpayer exercises ordinary business prudence and care in settling his tax obligations but is unable to meet them. What does that mean?

Suffice to say, what this means is that you attempted to settle your taxes by the deadline but something got in your way. You may prove this to the IRS by both legal and logical arguments.

Reasonable cause can be:

• Acts of God
• Fire, natural disaster, casual, other disturbance
• The IRS provided incorrect advice
• Erroneous advice from tax professional
• Unable to obtain records
• Serious illness, unavoidable absence, or death
• Forgetfulness
• Mistake or error was committed
• Ignorance of the law

As long as you were prudent and careful in addressing your obligation, any reason is acceptable, even if you were unable to comply.

Penalty Abatement Request

Immediately respond and request an abatement if you receive a tax bill with penalties. You may use Claim for Refund and Request for Abatement (Form 843) or write your own letter. You must include documents supporting the reasonable cause and a copy of the IRS notice showing the penalty. If you're paying the tax debt, include a note specifying that the payment is meant for the tax, not the interest or penalties. Also, note this on the check. (If you settle the tax, the interest will cease accruing.) Make multiple copies of the request and enclosures for your records as subsequent billings may be received before you receive a reply about the abatement request.

Remember that if your penalty abatement request is refused, you won't be able to make another request with the same reason.

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