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This question has been frustrating legitimate tax companies for years.  As we have seen in the economic collapse, the grass roots of the problem stems from greed.  The number of tax resolution companies over the past five years have spread like a plague.  They have spread like a plague because of a nave and irresponsible society that have been brainwashed to believe that they should not be responsible for paying their taxes (of course there are exceptions and people fall behind on their taxes for legitimate reasons). There is even a growing conspiracy theory that states the federal income tax is unconstitutional and there is no law that states you have to pay federal income tax.  While there are interesting arguments to this stance, good luck in selling that to the IRS.  They will label you a tax protesters and will end up the levying the hell out of you until you are forced to adhere to paying your taxes (law or no law).  There is a legitimate reason why the IRS charges penalties and interest and if there is a reasonable cause for falling behind on the taxes they will abate the penalties and associated interest. 

There is now a ridiculous amount of tax companies who tout they can save you pennies on the dollar and settle your tax bill for less than the tax itself who are growing in numbers because of the greed on both sides-the consumers and companies exploiting this greed.  Commercials are used to brainwash people throw thousands of dollars away to these tax companies because some schmuck on TV said they can save them from their growing tax bill.  Of course there are legitimate situations why the IRS will abate all or some of your penalties and on some rare occasions will settle for less than the actual tax owed (through the Offer in Compromise program). 

Why Does the IRS Charge so Much in Penalty and Interest?

If there were no consequences for  people not filing and paying their taxes on time then the system would fail.  Oliver Wendell Homes, former Justice of the United States Supreme Court, said, “Taxes are what we pay for a civilized society.”  Now whether you agree on how or what those taxes are spent on are an entirely different topic of discussion but the fact remains if the IRS, or any other creditor for that matter, did not enforce penalties and interest the majority of people would not pay on time, if at all. 

Do I Qualify for Forgiveness?

The answer to that is of course is maybe.  If the penalties and interest were assessed as a result of errors or delays due to the IRS than this is easy to resolve. But what would if the taxes were a result of a third party or other circumstance? What would  it take to have the IRS rid or lower the amount of penalties and interest they are charging?  Well first, the IRS will not abate interest (unless their fault) as the criteria they use to abate penalties, reasonable cause, is not present when dealing with interest.  Interest that accrued on top of penalties, however can be abated. 

Section 5.1 of the IRM provides the following criteria of when it may be possible to ask for and receive an abatement of penalties and associated interest:

Failure to File and Failure to Pay Penalties Category Category Issues/Possible Questions

Taxpayer claims he or she was unable to comply because of absence, either his or her own or the absence of another person.

IRM Who was absent?
Date(s) of the absence
Reason for Absence
How did the absence prevent compliance?
Is documentation provided?

The penalty(s) should not have been assessed in the first place, or the taxpayer disagrees with the amount of the penalty(s) What type of assessment error?
TP disagrees with penalty computation
A payment was missing

Payment was refunded in error
Not given credit for extension
TP mailed return timely

The taxpayer claims to be in bankruptcy What documentation is provided to confirm the bankruptcy?

The taxpayer claims he or she was unable to comply because of a casualty.

IRM Date(s) of casualty
Type of casualty, i.e.
In a FEMA declared area?
What was destroyed?
Is documentation provided?

The taxpayer, a relative, or someone affecting the taxpayer's business died.

IRM Date of death?
Who died?
Is documentation provided?

A divorce prevented the taxpayer from complying Who got divorced?
How did the divorce prevent the taxpayer from meeting their obligation?

Elderly Taxpayer
The taxpayer did not comply because he or she is elderly or incapacitated. Has someone taken responsibility for the affairs of the taxpayer?
A legal guardian appointed
A child or relative
Is there documentation?

Any problems associated with an extension TP forgot to file an extension
Extension and/or payment lost in mail
Third party did not file extension

The taxpayer did not know about, or was unfamiliar with filing requirements, withholding, etc.; the taxpayer was unaware of income or did not know it was taxable.

IRM TP claims ignorance of:
Didn't understand filing requirements
First time under-withholding of tax
First time self-employment

First time unanticipated income
Believed too little income to file
Didn't know the due date
Not aware of income
Not aware income taxable
Involves a foreign language or custom

An illness of the Taxpayer or an illness of someone else caused the failure to comply.

IRM Did illness stop the TP from taking care of normal financial activities?
Who was ill?

The taxpayer is physically or mentally impaired. Has someone taken responsibility for the affairs of the TP?
What is the extent of TP’s impairment?

IRS Error
Taxpayer claims that an IRS error caused the non-compliance

IRM What was the nature of the IRS error?
Error in an IRS or SSA Publication
IRS employee gave incorrect technical advice
IRS incorrectly processed TP's return
IRS incorrectly processed TP's payment
IRS failed to send promised forms
What documentation is provided?

Lack of Forms
The taxpayer did not have the form or schedule required to file the return. Did the TP request an extension of time to file?

Mail Problem
Taxpayer claims that return or payment was late due to a problem with the mail.

IRM What was the nature of the mail problem?
Return/payment sent to another taxing agency
Return/payment sent to another creditor
Return/payment lost in mail
Insufficient postage
Delayed in mail TP claims error by postal service.
Sent timely to Lock Box

Mitigating Circumstance
A mitigating circumstance does not refer to an event beyond the control of the taxpayer, but it is an issue mentioned by the taxpayer. Identifying mitigating circumstances helps to produce a better penalty disallowance letter. What kind of circumstance does the TP describe?
Lack of willful intent
TP called IRS for advice, but phones were busy
Filing requirements are too complex
TP's situation is special or unique
First time TP received unanticipated income, self-employment income, etc.
TP changed jobs, moved, having marital difficulties
TP took corrective action
TP detected error in first place
TP corrected the error

Select this category only if the case does not fit into another category. An abatement in the Other category requires concurrence by manager.

IRM What does the TP Claim?
When did the event preventing compliance begin and end?
What is the basis for the TP's claim?
What impact did this have on the TP?
What documentation is provided?
Does the manager agree to the abatement?

Records Unobtainable
The taxpayer was unable to obtain or reconstruct records.

IRM What type of records were unobtainable?
From whom was the TP unable to obtain records?
Why was the TP unable to obtain the records?

The taxpayer relied on someone else to file or pay, or relied on the advice of someone else.

IRM Who did the TP rely on?
What was the nature of the reliance?
Person said the TP did not need to file or pay
Person handled everything
Person failed to send in return or payment
Person failed to file extension
What documentation is available?

A move or relocation resulted in the taxpayer's inability to comply. A relocation will not meet reasonable cause penalty relief criteria. Therefore, no questions are asked in this category. The penalty will automatically be sustained.

One or more required signatures were missing from the taxpayer's return. What is the nature of the signature problem?
Joint return unsigned by husband or wife
Not signed, but otherwise complete
Spouse unwilling to sign return or check

Tax Law Change
The taxpayer's failure to comply was directly related to a change in the tax law. An abatement in the Tax Law Change category requires the concurrence of a manager. Did the TP cite a specific change in the tax law?
Would a return and/or payment have been due if no tax law change occurred?
When did the TP become aware of the need to file or pay?
Does the manager agree this case should be abated?

Unable to Pay
The taxpayer lacked the funds to pay or payment would have been a hardship.

IRM An undue hardship must be more than an inconvenience to the taxpayer. Each request must be considered on a case-by-case basis. The mere inability to pay does not ordinarily provide the basis for granting penalty relief. The taxpayer must show that they exercised ordinary business care and prudence in providing for the payment of the tax liability. Information to consider when evaluating a request for penalty relief includes, but is not limited to the following:
When did the taxpayer know they could not pay?
Why was the taxpayer unable to pay?
Did the taxpayer explore other means to secure the necessary funds?
What did the taxpayer supply in the way of supporting documentation, such as copies of bank statements?
Did the taxpayer pay when the funds became available? See Treas. Reg. 1.6161–1(b) and Treas. Reg. 301.6651–1(e)

There you have it. If you would like for us to help you draft an abatement request please fill out out the forms on the Get Started page.

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