How to Get IRS Penalties Waived
Are you interested in learning how to get your IRS tax penalties waived? Are you wondering if the State of Ohio waives tax penalties? What about RITA, our local tax collection agency serving most of the Northeast Ohio region? If you (or your corporation) file your tax return late or fail to pay your taxes on time, you face tax penalties—perhaps big penalties! Late filing and late payment penalties are the most common penalties that affect small business owners. Let’s say that in today’s mail, you receive notice that the IRS has hit you with one of the penalties.
This article gives you some ideas for getting your tax penalties waived. There are no black and white policies for when the IRS can waive a penalty, so we explain some keywords to use if you’re doing this yourself. If you don’t want to do it yourself, work with Ken-Mar Tax. As an Enrolled Agent Ken Weinberg is permitted to deal with the IRS on your behalf (CPAs and attorneys are the only other professionals the IRS will deal with to discuss your taxes). If you have ever been on hold with the IRS, then you know that having someone deal with the IRS for you is a big benefit. And as an Enrolled Agent, Ken is allocated a special IRS number to call that is usually much more responsive than the general IRS line.
The IRS charges steep penalties for filing your individual tax return after the deadline or not paying your tax bill in full by April 15th. The late filing penalty is generally 5 percent of the total tax owed on the return for each month the return is late, up to a maximum penalty of 25 percent of the total tax owed. The late payment penalty is 0.5 percent of the tax owed on the return for each month the tax is unpaid, up to a maximum of 25 percent of the total tax owed.
Tax Penalty Example. You forgot to file an extension and then filed your Form 1040 tax return on May 20. You owed $3,000 on the return and paid it in full when you filed it on May 20. The IRS hits you with $300 in penalties— $270 for late filing and $30 for late paying.
Getting Tax Penalties Waived
From our experience, whether you’re talking about the IRS or your local tax collection office, like RITA – to get your tax penalties waived you are relying on kindness. Lucky for us, we have built up some good relationships and goodwill, and if there’s a good reason, we can usually make the case for getting some form of tax penalties waived. If you are going this on your own, here are some things to know.
Get IRS Penalties Waived with First-Time Abatement
If the IRS has never hit you with a failure-to-file penalty or a failure-to-pay penalty, simply ask for “first-time abatement.” With this request, the IRS removes the penalties, provided you have no other tax compliance issues, such as unfiled returns. (If you have unfiled returns, read our post about back taxes and let us help). “First time” with the IRS is better than “first time” in the dictionary. The IRS says this is your “first time” if the IRS didn’t hit you with one of the late penalties in any of the three prior tax years. So, even if the IRS penalized you five or ten years ago, you can qualify for first-time abatement relief. You don’t need an actual “first-time” event.
First-time abatement is the easiest way to get a penalty removed, because you don’t have to give the IRS a reason or explain why it happened. First-time abatement should always be your first line of attack against IRS late filing and late payment penalties. In fact, the IRS tells its employees to look for this first-time mistake before considering other reasons.
IRS Penalties Waived for Reasonable Cause
If you don’t qualify for first-time abatement, getting your IRS penalties waived gets trickier because you now have to give the IRS a legitimate reason and a clear explanation for why you failed to file and/or pay your taxes on time. The tax code calls this “reasonable cause.” An invaluable reason to work with Ken-Mar Tax is that when Ken Weinberg discusses your case with the IRS on your behalf, you avoid the potential of unintentionally incriminating yourself while explaining your story to the IRS. (A fairly frequent occurrence.)
You can make your reasonable cause pleading on the phone, at least to start with. Your idea of legitimate reasonable cause likely differs, perhaps even greatly, from what the IRS considers legitimate reasonable cause. To get an IRS penalty removed using reasonable cause, you need to make your plea very intentional, specific and use key words. The IRS lists a few specific situations that are often reasonable cause, provided you can give specific details:
Death or serious illness—yours or an immediate family member. Assuming the death is not your death, be prepared with the relationship of the person, the date of death or dates of illness, how the situation prevented you from meeting your tax requirements, how the death or illness impacted your life negatively, and whether you promptly resolved your tax matters once a reasonable amount of time passed.
Fire, casualty, natural disaster, or other disturbance. If you were located in an officially declared disaster area, that’s important to disclose; however, it is not required for this to apply. Here, you need to describe the timing of the event; the effect on your personal life or business, how you attempted to comply, and how you complied as soon as possible.
Inability to obtain records. You’ll need to explain why the records were important, why they were unavailable, what steps you took to acquire the records, why you weren’t able to use an estimate, and whether you promptly filed the return and paid the tax once you secured the records. Any documentation you have that shows your efforts to get the information is also helpful.
If none of the above apply, you’ll need to provide detailed information showing that you exercised ordinary business care and prudence, but still weren’t able to meet your filing and payment requirements. Be ready to give a clear reason with a timeline, an explanation of how you complied with the law after the issue was resolved, why that time frame was reasonable, and why you could not have anticipated the issue in advance.
Avoid saying things like “I forgot,” “I just made a mistake,” or “I wasn’t aware of the law.” These statements will not lead to the IRS waiving a penalty. And don’t try to blame your tax preparer for your failure to file or pay. The Supreme Court has held this is not reasonable cause. Before you prepare what you will say, make sure you understand: you are responsible for your tax filings and payments—period. You are asking for a favor because of a unique circumstance that was not in your control and when you regained control, you addressed your tax filing responsibility as soon as possible.
If you’ve been frustrated dealing with the IRS, or you just don’t want to deal with the IRS, contact Ken Weinberg to explain your situation and find out what Ken-Mar Tax would charge to handle your situation and avoid dealing with the IRS all together.
- If you have back taxes and want to know the timeline and/or costs to get your back taxes resolved
- If you own a small business and want to discuss tax reduction strategies for the self-employed
- If you’re worried your last tax expert wasn’t doing the best they could have and want a second opinion…
Contact Ken Weinberg to set up a free consultation by filling out the form on this page.