What Is A Penalty Abatement And How Do I Get One?

Taxes can be tricky, especially when you owe money. When you do your taxes, sometimes you have to pay extra because of interest or penalties. These extra charges are like a message from the IRS saying you didn’t pay everything or made a mistake on your taxes. If you ignore these charges, the extra money you owe can grow and make your tax bill bigger than you thought. The good news is that the IRS has a special deal for people who are in trouble with their taxes for the first time. If you meet certain criteria, you may qualify for a first time penalty abatement. At CuraDebt Tax, we’re experts at helping people with their taxes. 

Common Penalties

There are several common tax penalties that the IRS (Internal Revenue Service) and state revenue services may impose if taxpayers fail to comply with tax laws and regulations. Some of these penalties include:

• Failure to File Penalty: This penalty is imposed when a taxpayer doesn’t submit their tax return by the due date or extensions. The penalty is typically a percentage of the unpaid tax and increases the longer the return is overdue.
• Failure to Pay Penalty: When a taxpayer doesn’t pay the full amount of taxes owed by the due date, they can face a failure to pay penalty. This penalty accrues as a percentage of the unpaid taxes and can increase over time.
• Accuracy-Related Penalty: If the IRS finds errors on your tax return that are due to negligence, substantial understatement of income, or a disregard of tax rules, you can be subject to an accuracy-related penalty. This penalty is usually 20% of the underpaid tax.
• Underpayment Penalty: This penalty applies when a taxpayer hasn’t paid enough taxes during the year, typically through withholding or estimated tax payments. The penalty varies depending on how much you underpaid and the prevailing interest rates.
• Late Payment Penalty: If you owe taxes and don’t pay them by the due date, the IRS can impose a late payment penalty. This penalty is typically 0.5% of the unpaid tax amount per month, with a maximum of 25%.
• Late Filing and Late Payment Combination Penalty: If both the failure to file and failure to pay penalties apply, the IRS might combine them into a single penalty, which is typically 4.5% per month, with a maximum of 22.5%.
• Substantial Understatement Penalty: If your tax return understates your income or overstates deductions by a substantial amount (usually 10% of the correct tax or $5,000, whichever is greater), you could face this penalty, which is 20% of the understated tax.
• Frivolous Tax Return Penalty: Filing a frivolous tax return with false or outlandish claims can result in a $5,000 penalty.
• Civil Fraud Penalty: If the IRS finds that you engaged in fraudulent activity to evade taxes, they can impose a penalty of 75% of the underpaid tax.

What Is A Penalty Abatement?

​​A penalty abatement is a process through which the IRS or state revenue service forgives or reduces the penalties and interest associated with unpaid or late taxes for eligible taxpayers. In essence, it’s a way to get a second chance and receive relief from the financial consequences of tax penalties. When a taxpayer fails to pay their taxes on time or makes errors on their tax return, the IRS typically imposes penalties and interest on the amount owed. A penalty abatement allows qualified individuals or businesses to request the removal or reduction of these penalties.

How To Qualify For A Penalty Abatement

To be eligible for a penalty abatement, a taxpayer usually needs to demonstrate a valid reason or “reasonable cause” for their failure to comply with tax obligations. Common reasonable causes might include situations like serious illness, natural disasters, or other circumstances beyond the taxpayer’s control that prevented them from meeting their tax obligations. The IRS and state revenues assess penalty abatement requests on a case-by-case basis. It’s important to note that penalty abatement applies to penalties and interest associated with the tax amount owed, not the actual tax debt itself. If approved, a penalty abatement can provide significant relief by reducing the extra charges, making it easier for taxpayers to settle their tax debts. However, it’s advisable to consult with a tax professional to understand the specific requirements and procedures for seeking a penalty abatement in your particular situation.

How To Request An Abatement Of Penalties

Requesting an abatement of penalties from the IRS (Internal Revenue Service) involves a specific process. Here are the steps to follow when requesting penalty relief:

• Timely Payment: Make sure you have paid any outstanding taxes you owe. The IRS is more likely to consider penalty abatement if you have settled your tax debt.
• Write a Letter: Prepare a formal written request for penalty abatement. In your letter, provide a clear explanation of why you believe you qualify for penalty relief. Be honest and provide all relevant details.
• Reasonable Cause: Explain the reasonable cause for your failure to comply with tax obligations. This could include situations such as serious illness, natural disasters, a death in the family, or other extraordinary circumstances that prevented you from meeting your tax responsibilities. Include documentation or evidence that supports your explanation.
• Attach Form 843: Fill out Form 843, “Claim for Refund and Request for Abatement,” and attach it to your letter. This form is used to formally request the abatement of specific penalties.
• Include Supporting Documents: Include any relevant supporting documents, such as medical records, insurance claims, or other paperwork that can validate your reasonable cause.
• Address and Mail the Request: Send your letter, along with Form 843 and supporting documents, to the appropriate IRS address. The address to which you should send your request can usually be found in the instructions for Form 843 or on the IRS website.
• Follow Up: Wait for a response from the IRS. This process can take some time. If you don’t receive a response within a reasonable period, you may need to follow up with the IRS to inquire about the status of your request.
• Consult a Tax Professional: If you’re unsure about the process or your eligibility for penalty abatement, consider consulting a tax professional, such as a tax attorney or enrolled agent, who can guide you through the process and increase your chances of success.

Seeking Tax Relief?

At CuraDebt Tax, we have a team of tax professionals who are able to find the best IRS resolution available to you. Contact us to better understand your tax problems and to choose the best IRS resolution option. CuraDebt has been helping individuals and small businesses for over 22 years nationwide. As of May 2023 CuraDebt received a score of 5 out of 5 on CustomerLobby for a total of 1179 customer views. CuraDebt is an Accredited Member of the American Fair Credit Council. Contact us for a free consultation. 1-877-999-0486. Take advantage of exploring another option for free. Not only do we handle tax relief, we also offer debt relief.

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