IRS Tax Penalties

When you owe money to the IRS they will charge you interest and penalties on the money you owe. By law the IRS must charge interest on your tax debt. Penalties, however, is another story. Penalties can be abated under certain circumstances. The IRS will conduct a thorough review of every fact surrounding the circumstances of your situation before abating any penalties.

In general, the IRS will consider one or a combination of the following reasons for penalty abatement:

Medical condition
Reliance on a tax professional
An act of God
Loss or theft of records
Victim of a crime

Before granting penalty abatement the IRS will conduct a “reasonable cause interview” whereby they will ask for detailed documentation supporting the reason for the causes listed above. The IRS will request a detailed chronology of events for these occurrences. A comprehensive review of what they will look for is listed below.

Medical condition – documentation including medical notes from physicians, medical bills, other financial bills, disability claims, lack of income or employment, etc.

Reliance on a tax professional – proper documentation would include law suits filed against the professional, documentation of dismissal of the tax professional with an analysis of the reason for dismissal, etc.

An act of God – any documentation proving a hardship related to a flood, hurricane, tsunami, tornado, fire or anything else that could be classified as an act of God. Insurance claims and proof of property loss would be required.

Loss or theft of records – police reports or documentation of dismissal of employees relating to the documents lost or stolen by an employee, etc.

Victim of a crime – evidence of embezzlement or other type of theft supported by police reports, insurance claims, etc.

There are a host of other questions the IRS will ask in their consideration of granting a penalty abatement. If you have a large tax liability and have experienced one or more of the items mentioned above the chances are good that you may qualify for penalty abatement. As a tax consultant I always seek ways to help clients benefit from penalty abatement. If you think you may qualify for penalty abatement call a tax professional. It is worth the call!