IRS Penalty Abatement | iRS Legal Defense


IRS penalties can add up quickly. More-so because if tax liabilities remain unpaid - not only does the IRS tack on penalties, but the also tack on interest ON TOP OF those penalties. Fortunately, if your IRS defense lawyer is successful in obtaining a penalty abatement, and the tax penalties are removed, the interest on those penalties will be removed as well.

This is not to be confused with interest on the tax liability itself. Interest is statutorily assessed and not subject to abatement - except under much more limited circumstances, described below. But interest on penalties are different and can be erased (since if the penalties disappear, then there is no foundation on which the interest can accrue).

Steps to Request IRS Penalty Abatement

First step is to request from the revenue officer, the PINEX form. PINEX stands for: Penalty and Interest Notice Explanations and will review where tax penalties and interest have been assessed. This will give your IRS defense lawyer the ability to review the circumstances under which penalties have been assessed by the IRS and give the IRS lawyer the ability to examine which should be the subject of an IRS penalty abatement request, where the IRS penalty assessments may have been wrongly assessed, or where any funds to be given to the IRS should be applied to best suit the taxpayer.

The IRS tax lawyer will also ask the taxpayer to explain what was going on in their life when these tax penalties were assessed. The IRS defense attorney is looking to make a reasonable cause argument to the IRS for why penalties should be abated. Was the taxpayer fighting addiction issues and is now sober? Was there a medical condition?

There are two types of penalty abatement requests: first time penalty abatement & when there are multiple years of problems.

First Time Penalty Abatement Request

The taxpayer must have three clear years (no IRS tax issues - tax returns properly filed and no penalties assessed) prior to requesting first time penalty abatement for failure to file, failure to pay and failure to deposit IRS tax penalties.

What if you have already received “first time penalty abatement” in the past?

As long as the prior three years are all clear, the taxpayer can request “first time tax penalty abatement” from the IRS even if it is not technically their first time.

Reasonable Cause Penalty Abatement

When a taxpayer has multiple recent years of tax problems, the first time penalty abatement program will not be available to them (although first time abatement may be able to be requested for the first year of penalties).

Otherwise, the taxpayer is going to request penalty abatement for “reasonable cause.”

Reasonable cause can be requested by filling out IRS Form 843 or a letter that provides similar information and explains the situation and facts surrounding the reasonable cause penalty abatement request.

IRS Interest Abatement Request

Requesting that interest on a tax liability be abated can only be successful under a limited set of circumstances. But interest can be abated if the IRS lawyer can demonstrate that the interest was assessed because of an unreasonable delay by the IRS or because of an error in IRS calculations. Essentially, the IRS must have been the cause of the problem that resulted in the interest assessment.

For example, interest on a tax liability can be abated because of the IRS’s own actions, such as: reassigning an IRS agent for training (causing the case to sit for longer than necessary) or losing taxpayer records.

Bottomline: if you can’t prove that the IRS was at fault for the interest accruing, there is no way to remove interest from the tax liability portion of the tax debt - and you’ll be limited to getting the IRS penalty abated only (if the taxpayer meets the tax penalty abatement qualifications).

How to Appeal When the IRS Rejects a Request for Penalty Abatement

File an appeal with the Collections Appeals Program (CAP Appeal).

The taxpayer can also pay the tax and apply for a refund.

Offer in compromise

Currently not collectible status.

IRS Tax Lawyer Resources

Penalties, Interest and Penalty Abatement - Internal Revenue Manual, Part 20.

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