Removing Penalties and Interest Charges – Can you do that?
One of the IRS’s methods of punishing wayward taxpayers is to add penalties and interest to back taxes, failure to file cases or returns that have been filed late, and even if you fail to file the right tax return. Both penalties and interest charges are added automatically. Given these issues, many people have IRS Problems. If this is the case for you, investigating the possibility of removing both penalties and interest charges on the taxes you owe is worthwhile.
Penalties
There are five types of penalties the IRS uses: Accuracy, Fraud, Failure to File, Failure to Pay, and combinations of these penalties.
One way to remove penalties from your tax bill is to show reasonable cause. Reasonable cause can be identified in many ways. Common events the IRS will consider are:
• Forgetfulness
• Ignorance of the law
• Incorrect advice from the IRS
• Incorrect advice from your tax professional
• A mistake was made
• The inability to obtain records
• Serious illness or death
• Natural disasters
• Acts of God
As long as your reason shows that you did not intentionally cheat, deceive, or mislead the IRS, it can qualify as reasonable cause.
Penalty Abatement
You can request a penalty abatement in writing as soon as you receive your tax bill. IRS Form 843, Claim for Refund and Request for Abatement, is also available. Return the reasonable cause documentation along with a copy of your IRS Notice showing the penalty assessed. If you owe taxes and can pay them at this time, include your payment stating that this amount should go toward your tax portion of the bill. Do not forget to make copies of all your correspondence to the IRS.
Be patient as it may take more than one mailing to receive a response to your request.
It is also important to note that if your request for penalty abatement is denied, you cannot use the same grounds to make another request.
Interest
Removing interest charges from your tax bill is not easy, and most times, it is not an option. If the reason interest has been charged is because of an IRS error you will have more success.
Other circumstances that may allow interest to be removed include:
• If there were delays by the IRS.
• If a tax or penalty is abated.
• They may be decreased if you obtain an Offer in Compromise.
• Filing for bankruptcy. This should be used as a last resort and it should be noted that you might still owe taxes after the bankruptcy term.
Contact our office for more information regarding IRS interest and penalties or any other IRS Problems you might be experiencing. Our knowledgeable staff will be able to help you resolve your IRS Problems so you and your family will be worry free.
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Comments on Removing Penalties and Interest Charges – Can you do that?
My husband had taxes prepared by an accountant in 2003–unfortunately he never filed them. Now–we owe triple the amounts on both federal and state. We were married at the time but filed separately. I believe we have a case as to why the returns were not filed. We have been trying to work with the IRS but are getting nowhere. I did sent a letter asking for abatement of penalties and interest (I did not fill out the form mentioned IRS form 843). All previous years prior to and after 2003 were filed appropriately for him. Any thoughts?
You need to prepare a penalty abatement letter. You do not need a form 843. You should be prepared to explain why you should have your penalties forgiven despite the fact that you filed and/or paid late. The standard is that even though you exercised reasonable business care and prudence something happened that you could not have foreseen that caused you to file and/or pay late.
I've been researching online and something is still not clear to me…..suppose someone submits tax returns in fall of 2000. The tax might be assessed sometime in 2002. Penalties and interest will continue to accrue over the 10-year statute period. Do ALL of the penalties and interest disappear when the statute of the initial tax is expired, or do the 10 years of penalties and interest fall off at the end of each year over 10 years? Thank you
Lisa,
Good question. The penalties and interest expire when the underlying tax assessment expires. For example, let's say a taxpayer filed a return with a balance due on April 15, 2002. A ten year statute begins to run and if no tolling factors arise, the statute would expire on April 16, 2012. Now let's say our taxpayer was audited and additional tax was assessed on July 5, 2004. An additional collection statute would begin to run on that assessment, and assuming no tolling factors, it would expire on July 6, 2014. The penalties and interest attributable to EACH assessment expire when the collection statute for that assessment expires. I hope this answers your question. Thanks for asking it!
Thank you – I appreciate the prompt and thorough response.
I have another question: in Nov of 1998 my wages were garnished by the IRS and I had to call them. In the course of collection my income and expense info, the agent asked when my car would be paid off and I told her. She said that when it is paid off I have to send the amount of my car payment to them. Would I need to make payments only until the statute expires, or would my sending them payment open another 10-year can of worms?
Thanks again.
Only until the Collection Statute expires.