Common Reasons Tax Penalties Can be Removed

May 27, 2010 | By: Manuel Vetti

tax penaltyWhen it comes to issuing penalties the IRS shows no remorse. They have computers that automatically generate penalty after penalty depending upon what the taxpayer did wrong. One good thing to know is that the IRS is actually pretty lenient with allowing taxpayers to remove the penalties that they owe. Before the IRS will remove the penalties the taxpayer must give proof to the IRS that they had a legitimate reason for not complying with IRS regulation. The IRS will accept a wide variety of excuses and will review each request on a case by case basis. The official term used for removing penalties with the IRS is IRS penalty abatement. Below are some of the common reasons the IRS will allow a taxpayer to abate their penalties.

  1. Lost tax records: If your tax records were lost and it was not your fault. The IRS will not accept reasons of neglect, but will allow situations that were out of your control.
  2. Taxpayer was absent at time of filing: Maybe the taxpayer was being held hostage in a foreign country, in prison, or some other type of absence that was beyond their control that prevented them from staying in compliance with US tax law
  3. Bad advice from a professional: If you can show that the tax professional is considered to be a trusted tax professional and you had confidence that the advice given was fair and accurate
  4. Made an error: Yes, even if you make an error you may be able to remove the penalties. You must be able to show that you were acting with “ordinary business care and prudence”. Which means you did your best to comply with tax laws but made an innocent mistake.
  5. Reason beyond control: If you were unable to determine your tax owed or pay your taxes owed for some unforeseen event that you had no control over.
  6. Victim of a crime: If you were a victim of a crime and had your records stolen or it had a significant impact on your life that put your tax filings on the back burner. This can be a wide variety of reasons; it can cover physical theft of assets or mental impact on the taxpayer.
  7. Natural Disaster: If there was some sort of disaster that was out of your control that either destroyed tax records or created a significant life event that was beyond the taxpayers control
  8. Death of someone close: Deaths in the family or of a close friend are traumatic times in people’s lives and the IRS realizes that handling their taxes in situations like this is put on the back burner and they do not want to penalize these people

The main thing to realize here is that the IRS does not want to penalize people who do try their best to stay in full compliance with IRS rules and regulations. The IRS issues penalties to pressure those people that aren’t always trying their best to stay in compliance with the IRS to stay in compliance. So if you are one of those people that typically does try to follow all IRS laws and have been penalized, there is a strong likelihood that you can actually have these penalties removed.