Many taxpayers feel uneasy when they open a letter from the IRS and see that they owe penalties. The good news is that the IRS offers opportunities to remove or reduce penalties in certain cases.
If you have received a notice about a penalty, you may find relief through programs that can reduce the amount you owe. Before you try to figure it out on your own, you can speak with our New York tax attorneys at Thorgood Law Firm for guidance on how to request an abatement. If you need legal counsel now, contact us today for a free consultation.
What Is the Purpose of IRS Penalty Abatement?
The IRS imposes penalties to encourage people to follow tax rules. Sometimes, a taxpayer misses a deadline or miscalculates a payment without intending to break the rules. In other cases, a difficult life event causes someone to file taxes late.
The IRS recognizes that good-faith taxpayers should have a path to correct mistakes. As a result, it created certain penalty abatement policies that allow taxpayers to request removal or reduction of penalties. These programs reward voluntary compliance and give a second chance to those who qualify.
One key policy is First-Time Penalty Abatement (FTA), designed to help people who have a clean filing record and suddenly run into trouble for the first time. There are also recurring penalty abatement options for those who have used the FTA in the past or who do not qualify for it. Our New York tax attorneys at Thorgood Law Firm can analyze your situation and advise you on whether these programs can help.
How Do You Request First-Time Penalty Abatement?
Many people learn about FTA after they receive a letter from the IRS. The letter often outlines the type of penalty and the amount owed.
If you think you qualify for FTA, you can request it in several ways. One option is to call the IRS toll-free number listed on your notice. Another is to send a written statement that explains why you qualify or to use Form 843, which is the Claim for Refund and Request for Abatement. Each route can work, so you can choose the one that feels most convenient.
When you request FTA, you must show that you filed the tax return or at least submitted an extension and that you meet the clean history condition. You must also pay (or set up a payment plan for) any outstanding tax. The IRS typically checks their records to confirm you have had no penalties for the previous three years.
Our New York tax attorneys can help you gather the documents needed to make a persuasive FTA request and guide you on how to submit it. Having someone look over your situation before you ask for relief can boost your odds of success.
What Are the Risks for Repeat Offenders?
While FTA and other abatements can help, those who repeatedly violate tax rules may face stricter treatment. If you have already received relief in the past three years, the IRS likely will not grant FTA for a new penalty. You could still pursue a different form of abatement, but the IRS may look more closely at your record. The agency’s goal is to promote compliance. Someone who continues to file late or fail to pay might lose the benefit of abatement and instead face larger penalties or stricter collection actions.
Although the Consumer Financial Protection Bureau (CFPB) focuses on the financial industry, the idea behind its approach to repeat offenders can mirror the IRS’s approach to tax compliance. The CFPB recently formed a repeat offender unit and is imposing heavier penalties on those who do not follow the rules after being warned. This attitude of increased scrutiny for those who keep making the same mistakes can also apply to taxpayers.
How Often Can You Use FTA?
You can only use FTA once every three years, and it typically applies to a single tax period. If you have multiple years with penalties during the same stretch, you may be limited to receiving FTA for one of them. You might qualify for other abatements or show reasonable cause for the remaining years, but the simple administrative waiver of FTA may not be available.
This limitation is why it is wise to approach each tax year carefully. If you are behind on multiple returns, you might want to speak with our New York tax attorneys at Thorgood Law Firm before you choose which year to request FTA for. With careful planning, you can gain the maximum benefit allowed.
Some taxpayers wait too long and end up with penalties for several consecutive years, then discover that they cannot use FTA for all of them. By staying on top of filing and paying, you can reduce the risk of letting these problems accumulate. If you do find yourself in a position where you owe penalties for several years, proper guidance can help you minimize how much you pay.
What Happens to Interest on Penalties?
Another important point to remember is that even if the IRS grants an abatement of the penalty itself, you might still owe interest on the original tax. If the penalty is removed, the portion of interest on the penalty can also be removed, but interest on the unpaid tax generally remains.
Some taxpayers are surprised to learn that the relief does not erase the entire debt. You must be prepared to pay the underlying amount of tax and any interest that applies to it, even if the penalty goes away.
The good news is that removing or reducing penalties can significantly cut the total balance you owe. Some penalties can be quite large, and abatement can bring the debt down to a more manageable level. Our New York tax attorneys can review the numbers with you. We can also help you establish a payment plan if you still owe money after the penalty abatement.
Should You Dispute a Penalty If You Do Not Qualify for FTA?
Disputing a penalty can still make sense if you do not qualify for FTA. You might have evidence that you had reasonable cause. You might show that you never received a key document or that the IRS notice was sent to an old address.
Even if you cannot prove that you deserve a complete abatement, the IRS might reduce the penalty. Taking the time to present your case can be worthwhile, especially if your penalty is large.
Disputing a penalty usually involves a phone call or written communication with the IRS. You will need to explain why you think the penalty was not correct or why you qualify for relief under different guidelines.
Having our New York tax attorneys at Thorgood Law Firm assist you can simplify this process. They can help you prepare a clear statement and any documents that support your position. If the IRS denies your request, you might have options to appeal.
Contact Our New York Tax Attorneys at Thorgood Law Firm
If you have received a penalty notice from the IRS or if you worry that you might soon, there are steps you can take to ease the burden. Our New York tax attorneys at Thorgood Law Firm can guide you through First-Time Penalty Abatement, reasonable cause relief, or other abatement options. Whether you are facing a failure-to-file penalty, a failure-to-pay penalty, or a failure-to-deposit penalty, we can determine which approach applies to your situation.We are located at 100 Park Avenue, 16th Floor, New York, NY 10017, and we represent clients not only in New York but also across the country. Reach out to us at (212) 490-0704. If you have questions, do not let penalties grow any larger. Addressing them sooner can help you find a path to resolution and possibly save money.
