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IRS
Tax Penalties can turn a fairly manageable debt into an overwhelming
burden pretty much overnight. The
penalty for late filing of federal payroll tax returns is 4.5% per
month for the first 5 months. There is also a .5% per month
federal penalty for failure to pay the tax which usually begins to
accrue as of the due-date of the return. While the failure to
file penalty reaches its maximum after the fifth month (22.5% total),
the failure to pay penalty continues to accumulate to a maximum of
25%. Therefore, the total federal filing and late payment
penalties can reach a whopping maximum of 47.5%! Fortunately,
the IRS is not completely unfair, and if you had an acceptable reason
for falling behind on your taxes you may not have to pay the
penalties that were assessed. You may even be eligible for a refund
of all those penalties you paid if you have already paid off your
debt.
Federal
law provides for the reduction or removal of penalties if there is an
acceptable reason or "reasonable cause." Some of the more
obvious justifiable reasons for not filing/paying may be
physical or psychiatric illness of a principal in the company, death
of a principal, or the need for the principal to care for a family
member with an illness. Under certain circumstances, the
unavailability of documents or records may provide reasonable cause
to remove or reduce penalties. If the dollar amount of the penalty is
large and there are compelling circumstances to support "reasonable
cause," hire a professional to pursue penalty abatement.
A
request for Penalty Abatement requires very specific wording and a
solid understanding of the relevant IRS Code and Procedure.
Even if you had a good reason for not paying your taxes on time, it
is often extremely difficult to get these penalties removed without
professional help.
Penalty Abatement requires the taxpayer
show the IRS in writing that there was "reasonable cause"
for not paying the taxes and that he or she has shown "due
diligence" and "no neglect" in attempts to repay the
debt.
Reasonable
Cause
The
first thing that must be established with the IRS is that there was
“reasonable cause” for getting behind and not paying the taxes.
Listed below is a sample of SOME of the events that the IRS may
consider to be reasonable cause for Penalty Abatement. This is
not a complete list, it is only a list of some of the most common
reasons. Keep in mind: The events must have occurred at the time
you fell behind in your taxes and must be related to what caused you
to fall behind in your taxes in order to be considered "reasonable
cause."
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Embezzlement
or theft.
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Fire,
flood, windstorm, riot or other disaster out of your control.
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Bad
accounting advice.
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Lost
or destroyed records.
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Serious
health ailment.
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Serious
health ailment of a family member.
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Death
of a close family member.
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A
divorce that caused a lot of anxiety and upset your financial and/or
mental equilibrium.
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Caring
for someone who cannot care for himself or herself.
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Retired
or on a fixed income.
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Psychological
problem that required treatment.
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Lengthy
period of unemployment.
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First
time filer of a new tax form.
Due
Diligence and No Neglect
The
second thing that must be documented is that the taxpayer has beendiligent and not neglectful in efforts to repay the tax debt.
Obviously, the best situation here would be if the tax has been
paid back in full and all tax has been paid and returns filed since.
However, if this is not the case it does not mean that you do not
qualify for a Penalty Abatement. If you are in a Payment
Plan
or have made some other consistent or significant effort to repay
your debt and keep up with your taxes this will often be sufficient
to recoup all, or at least a significant portion, of your
penalties.
The final thing that you must keep in mind when
considering a Penalty Abatement is that after it is submitted to the
IRS it will be reviewed by a real person. This person often has the
ability to grant or deny your request completely at his or her own
discretion. Because of this, it is very important to provide as much
proof as possible of your circumstances. For example, if you had a
fire or flood it would help your case significantly if you have
pictures; or if you had a theft, a police report may help your case.
Any documentation you can provide will help your chances
significantly. Everyone has the right to request a Penalty Abatement.
Naturally, the quality of your story and documentation can greatly
affect your chances for getting relief.
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