IRS Penalties and Abatement/Relief

The Internal Revenue Service taxes individuals and businesses according to the Internal Revenue Code (IRC), which is also known as the “tax code.”  In the tax code, taxpayers can be subject to penalties for a variety of reasons, but the most common reasons are Failure to File and Failure to Pay.  IRS penalties can add potentially thousands of dollars to a taxpayer’s total tax debt amount, which can increase interest-based fees too.  Penalties were introduced as a way to deter delinquent taxpayers to file and pay on time.

Fortunately there are provisions in the IRC that allows for IRS Penalty Abatement.  IRS Penalty Abatement is a way for taxpayers to get relief from penalties if they meet certain criteria.  For example, – if a taxpayer received erroneous advice from an IRS representative, and following that advice resulted in additional penalties for the taxpayer, the taxpayer would have grounds to appeal for an abatement.  The other options to get rid of a penalty is to pay it in full, pay it by setting up a payment plan, or settling your total tax debt amount with an Offer In Compromise.

IRS Penalty Handbook

The IRS lists a number of provisions in a Penalty Handbook that define when a taxpayer would be eligible for an abatement.  In the Penalty Handbook, there are four separate categories that determine whether or not the taxpayer is eligible for abatement:

  1. Reasonable Cause Abatement (RCA)
  2. Statutory Exceptions
  3. Administrative Waivers
  4. Correction of Service Errors

The IRS Penalty Handbook is written for tax professionals, which makes it very complicated and therefore difficult for average Americans to interpret.  If you have penalties, especially if the penalty is more severe – like a Civil or Criminal penalty – you should probably consult a professional.  Getting accepted for an IRS Penalty Abatement can result in potentially thousands of dollars of savings, so it’s worth investigating what your options are with an expert.


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