Can IRS Tax Penalties Be Relieved?

There are generally three ways to ask IRS for relief otherwise known as penalty abatement.

The first and rarest is receiving erroneous advice from IRS.  There are a number of conditions that must be met for this to apply.  An expert tax practitioner such as an enrolled agent can identifty when a condition is met and  may submit to IRS a Form 843, Claim for Refund and Request for Abatement along with supporting documentation.

For Failure to File (FTF) or Delinquency and Failure to Pay (FTP), a relatively new abatement is available for a first time offense.  This relief is called First Time Abatement or FTA.   The main conditions are that there are no previous FTF or FTP penalties in the preceding 3 years of the claim year; only the first penalty period qualifies as the claim year; and the taxpayer must ask for the relief in writing, generally with claim Form 843.  As an example: FTF and FTP are applied to the 2011 and 2012 tax periods.  The 3-year look back period is 2008-2010 and the IRS determines that there were no penalties asserted in these years.  Therefore, relief is granted for the 2011 tax period but not for 2012 , although Reasonable Cause may still apply to 2012.

Reasonable Cause is the third and most common type of relief and can apply to all three penalties referenced above.  As the IRS states, “If you believe you have an acceptable reason for relief, you may send us a signed statement explaining your reason.  We will review it and let you know if we accept your reason.”  Reasonable Cause relief is never automatic and is rigorously evaluated by the IRS.

Penalty relief can be extremely complicated and generally needs the professional touch.  When relief is allowed, often thousands of dollars are in play.  Jeffrey Mitchell, Enrolled Agent, with 26 years federal tax experience is the local Jacksonville penalty relief professional.