How to Reduce Your Tax Liability Penalty Abatements
Typically there are only so many ways to reduce your tax liability or pay less than the amount of tax debt you owe. Examples of these would be, having your penalties abated (waived or reduced); having your tax settlement (offer in compromise) with the IRS accepted; having the IRS accept a partial payment plan and you pay the amount of the originally accepted agreement through the collection statute; having your liabilities placed in a currently non-collectible status and you remain in such status for the remaining collection statute; or, file an amended return in which the amended return shows a lower tax liability (tax debt) than the original return filed.
The IRS will consider waiving or removing penalties but the taxpayer must establish reasonable cause to have such penalties waived. Examples of reasonable cause to remove penalties would be the death or serious illness of the taxpayer or an immediate family member of the taxpayer; the taxpayer relied on the advice of a competent tax advisor; inability to obtain records; casualty loss to the taxpayer. There are other issues that can establish reasonable cause as well. In reviewing the taxpayer’s request to have penalties removed or abated, the IRS will consider when the specific events occurred and how such events affected the taxpayer. Usually, the events that led to the accrual of tax must coincide with the tax accruals. For example, it may be hard to argue that an injury occurring in 2004, led to a tax accrual in 2008. Moreover, the IRS can decide to remove types of penalties for a specific period, or may decide to waive penalties for specific period but not other periods. Thus, the request to have penalties abated or waived may not lead to an all or nothing determination by the IRS. In certain situation, we have been successful in having the failure to pay penalty waived or abated for clients, when the IRS would not waive or abate the failure to file penalty. Other times, we have successfully removed all penalties.
If the IRS agrees to waive your penalties, the interest that has accrued on such portion of penalties can be removed as well.
A number of firms make false promises and representations to taxpayers about their ability to have their tax penalties and interest waived and removed. In many cases, it is the only way such firms are able to have the client sign up with the firm as it can justify the fee. Further, it can keep the client on board, and be used as an excuse to pay more money in an attempt to have the penalties and interest removed. Do not fall for this trap!
If you are looking at your ability to remove penalty and interest from your tax debt, please contact us and take advantage of our free consultation.
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