What is a penalty abatement?

Penalty Abatement relieves you from facing penalties due to failing to file taxes or make payments on time as an individual or failure to deposit certain taxes as a business.

Can all penalties be removed?

The short answer is most of them can, however in some situations there are penalties which can’t be removed or abated. It's also important to note that first time penalty abatement requests are so much easier than repeat requests.

Can part of the penalty but not all be abatement?

Yes, it is possible. We have to first see what makes up your tax debt obligation, how many tax periods, the causes of the penalty and more and then we can have a idea of which penalties are likely to be removed with penalty abatement.

What is Trust Fund Penalty?

A Trust Fund in terms of employment tax should not be mistaken with a trust fund in terms of wealth management. This is the payroll tax amount assessed to the officers of the business. Tax resolution can help reduce and or arrange the payment of these taxes.

What is a Trust Fund Recovery Penalty (TRFP)?

A Trust Fund Recovery Penalty can be assessed if the unpaid trust fund taxes cannot be immediately collected from the business. This often happens if the business falls on hard times and taps into that fund for any reason. According International Revenue Code 6672(a) an individual can be held liable for penalty for willful failure to collect, account for, or pay to the IRS the taxes for the business.

Who is Held Responsible for the TRFP?

According to the IRS, the TRFP can be assessed against any person who is: responsible for collecting or paying withheld employment taxes, willfully fails to collect or pay the taxes.

Penalty Abatement Relief

What is Penalty Abatement Relief?

Penalty Abatement eliminates penalties for failing to file tax returns or making payments on time as an individual. Additionally, penalty abatement can apply for failing to deposit certain taxes as a business. In other words, the IRS may waive penalties for those compliant with the law but unable to pay taxes due to circumstances. There are three types of penalty relief that the IRS offers:

Reasonable Cause

First Time Penalty Abatement

Statutory Exception

Since there are three types of penalty abatements available, a tax professional should be consulted before any action by you is taken. Moreover, a tax professional better understands the application of these waivers and how to qualify for them. After all, they have the training, education, and experience that qualifies them to determine eligibility.

First: What is Reasonable Cause?

Reasonable Cause, as defined by the IRS, is based on all facts and circumstances in your situation. Moreover, it must be established that you followed all procedures to meet your tax obligations but due to certain circumstances, were unable to meet them. Furthermore, the IRS notes that financial hardship does not make you eligible for the reasonable cause waiver but the circumstances that led to the hardship may make you eligible.

Eligible causes include:

Fire

Natural Disaster

Inability to obtain records

Death

Serious Illness

Unavoidable absence of taxpayer or immediate family

Second: What is First Time Penalty Abatement (FTA)?

Briefly, this type of penalty relief is meant to reward those who typically meet their tax requirements. Consequently, you are eligible for penalty abatement if you typically follow tax procedures and obligations but for the first time, could not meet your tax obligation on a single return. Subsequently, you must not have received a penalty on the specific type of return within the past three years in order to be eligible for this waiver.

You Are Eligible for FTA if you:

Have no penalties for three tax years prior to the return that you received a penalty for.
Did not previously have to file a return.
Have filed all current tax returns or filed an extension of time to file.
Have arranged to pay all taxes that are due.

Third: What is a Statutory Exception?

A statutory exception is for those who have asked for advice from the IRS and received and acted upon that incorrect information. Consequently, if you have received a penalty due to misleading information from the IRS, the IRS will request certain information to determine if you are eligible for this type of waiver.

The IRS requires these elements for you to be eligible for this type of relief:

What About the Interest Caused By the Penalties?

In addition, any interest charged because of the penalties due to incorrect information by the IRS will be reduced or removed by them. To clarify, the IRS does not penalize taxpayers for incorrect information given by them.

Next Steps:

If the IRS is about to assess penalties against you, you may be eligible for one of these penalty relief options from the IRS. Speaking to a tax professional about your options is the best line of defense. Give us a call today and we can help you decide which type of penalty relief best suits your situation. Visit our IRS problem resolution services page for more information.