LAS VEGAS (AP) — According to tax experts, if you got a tax penalty letter from the IRS, you may be able to have the fines reduced under certain circumstances.
The lesser-known first-time penalty abatement helps otherwise cooperative taxpayers.
“It’s like a get out of jail free card,” said Rosemary Sereti, Deloitte Tax managing director and former IRS senior official.
However, “not every taxpayer qualifies,” she remarked at the annual meeting of the American Institute of Certified Public Accountants in Las Vegas.
Failure to file, which is 5% of unpaid taxes every month (or a portion of the month) your return is late, up to a maximum of 25%, or failure to pay, which is 0.5% monthly, capped at the same percentage.
“Very frequently, these two penalties run together,” said Debra Estrem, managing director of private wealth disputes at Deloitte Tax and former IRS Office of the Chief Counsel.
The accuracy-related penalty, which is normally charged at 20% of the underpayment amount in situations of “negligence or disregard,” is another tax assessed by the IRS. According to Estrem, the cost might increase to 40% in some situations.
There is also a steep penalty for civil fraud — “a whopping 75% penalty” — but the IRS bears the “burden of proof” in those situations, she claims.
How to Obtain IRS Penalty Relief
According to the IRS, three penalties may be eligible for first-time abatement: failure to file, failure to pay, and failure to deposit. However, most taxpayers will not qualify if they do not file a return, according to Sereti.
The IRS also expects a track record of tax compliance, such as timely files, payments, and no penalties. “You have to be a good taxpayer who made a one-time mistake,” she added, adding that you must have a “clean record” for the previous three years. Detailed IRS guidelines can be found here.
If you get an IRS penalty notice, you may request a first-time abatement by following the procedures on the letter.
The quickest option is to call the IRS at the number shown in the upper right corner of the notification. There is also the option of mailing a written request.
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If you are authorized, you will get another notification removing the penalty and interest. However, if the IRS denies your request, you can file an appeal.