IRS Penalty Abatement / Penalty Forgiveness
The IRS charges outrageously high penalty rates on debts that are owed to them. Then they charge you interest on both the principal and penalties. The combined effect of this is that your debt can quickly double or triple from what you originally owed them. Here’s some of the penalties that they charge:
- Late Filing Penalty: The IRS charges 5% of what you owe them per month if you file the tax return late. This penalty maxes out at 25% (after 5 months late, the penalty is at the maximum).
- Late Payment Penalty: The IRS charges 0.5% of what you owe them per month for not paying your debt on time. This penalty maxes out at 25% as well (after 50 months, the penalty is at the maximum).
Additionally, individuals may also get hit with one-time estimated tax penalties and businesses can get hit with federal tax deposit penalties. Both of these can add even more penalties to your IRS debt, and make it grow even quicker.
The IRS also charges interest on the debt. Their interest rate changes each quarter, but in 2011 they are charging a 4% interest rate, compounded daily.
What Can You Do About It?
The law says that the IRS can grant an abatement of penalties, or penalty relief, under certain circumstances. The most common way of achieving this is by proving to them that you had “reasonable cause” for not filing or paying on time.
Reasonable cause means that something happened that cause you to fall behind on your taxes that wasn’t your fault, or was unanticipated, or unavoidable.
Examples of reasonable cause include:
- Medical Issues, Illness, or Death
- Natural disasters and other Acts of God
- Fire, Theft, or other “Casualty”
- Financial Difficulties
These are just examples.
Anything that meets the Reasonable Cause criteria can potentially be used as an argument for penalty abatement (forgiveness). As your Tax Attorney, my job is to present your argument in a way that convinces the IRS that your circumstances qualify as a reasonable cause and an abatement is called for.
Even if you think that your story doesn’t qualify as reasonable cause, we should still discuss it to see if we can make an argument. The worse the IRS can say to our request is “no”.
Take the Next Step
Whatever your tax needs are big or small I invite you to call me at (303) 376-6267, complete the “Contact Me” form below, or email me at john@cotaxattorney.com