The IRS offers a waiver of penalty fees for individuals who have previously complied with their tax obligations and have incurred penalties for the first time. However, although this is not a new initiative and has been available to taxpayers for over 20 years, very few people are aware of it.
This one-time tax penalty forgiveness can be extremely beneficial in addressing mounting penalty fines and interest before your debt escalates and becomes insurmountable. The main challenge you will face with this approach is acceptance from the IRS. Historically, many individuals have been incorrectly rejected for a first-time penalty abatement waiver, which has resulted in an appeal or accepting and paying penalties that may not be necessary.
Ronald Arthur Stearns Sr. PLLC can help to ensure your abatement eligibility is correctly assessed by the IRS and that your argument for relief is conveyed effectively. In addition to the first-time waiver, we have experience with reasonable-cause arguments to waive penalties and other debt-relief options, such as an offer in compromise or the IRS hardship program.
For help understanding which approach is best for your circumstances and support applying for tax debt relief methods, contact Ronald Arthur Stearns Sr. PLLC. Tax forgiveness may be more achievable than you realize, and we can help you access this.
Contact the Ronald Arthur Stearns Sr. PLLC team today by calling 210-853-2135 or emailing us to book your initial consultation.
IRS Tax Debt Penalties
Errors, inconsistencies, and missed deadlines in the process of meeting your tax obligations can result in penalties from the IRS. You can be issued a penalty for missing a number of deadlines, providing inaccurate information, dishonored checks, incorrect payments, and underestimating your tax liability.
The IRS charges many penalties on a recurring monthly basis until the error is corrected, often increasing in severity as more time passes. Most penalties are subject to additional interest charges on top of the initial fine. These costs can quickly mount up and result in a substantial debt owed.
IRS First-Time Penalty Abatement
Few people are aware of the first-time penalty abatement they can apply for to waive specific penalty fees. If you meet the criteria, a first-time penalty abatement can remove the penalty charges and associated interest you have received from the IRS.
A tax professional can assist you with establishing whether a first-time penalty abatement could apply to your situation and grant you some relief from penalties.
What IRS Fines Are Eligible For A First-Time Penalty Abatement?
There are three specific penalties from the IRS that are eligible for a first-time penalty abatement. These are penalties that taxpayers incur for not filing their tax returns, not paying their tax bills, or paying their tax bills incorrectly.
Failure To File Penalty
Filing taxes is a legal responsibility. You will incur fines if you fail to file your taxes by the specified due date. The failure to pay a penalty is 5% of your unpaid tax bill for every month that your income tax return is overdue. Interest will also be charged in addition to the penalty fine.
Failure To Pay Penalty
Failing to pay your tax bill will result in additional financial penalties. The IRS failure to pay penalty is 0.5% of your total unpaid taxes for every month that the payment isn’t made, up to a total of 25% of your taxes owed. If you receive a notice of the intent to levy, this increases to 1% per month.
Failure To Deposit Penalty
You may face a failure to deposit penalty if you do not pay your tax liability on time, in the right amount, or in the correct way. If your deposit is 1-5 calendar days late, your penalty will be 2% of the unpaid deposit. This increases to 5% for 6-10 days late and 10% for more than 15 days. If you receive a penalty notice of failure to deposit or notice for immediate payment, the penalty can increase to 15% of your unpaid amount.
First-Time Penalty Abatement Eligibility
Relief from first-time penalties may be available to taxpayers with a history of tax liability compliance. To be eligible for the IRS first-time penalty abatement, you must satisfy the following criteria:
- You must be up-to-date with your tax bill. This can include a payment plan.
- You must be compliant with tax obligations and have a penalty-free record for three tax years before receiving the penalty.
- You must be up-to-date on filing your tax returns. This does not include a tax extension.
How Do I Apply?
You can apply for a first-time penalty abatement waiver in writing, by calling the IRS or through their online e-services. If you choose to apply by calling the IRS Practitioner Priority Service, ensure you note the agent’s name and number and request a follow-up confirmation in writing.
Ensuring that your application is provided in the exact manner specified by the IRS and that you submit any supporting evidence is essential. The first-time penalty waiver process has been heavily criticized for the number of people who are unfairly denied. As such, to reduce the risk of rejection, your application must clearly outline your eligibility and include a compelling argument for relief.
If you have reasonable cause for the issue that resulted in a penalty, you should present this argument initially with additional documentation to support it. If you receive an abatement for reasonable cause, this will not use your first-time abatement entitlement, which could then be used in the following tax year for future penalties.
Enlisting the help of tax professionals to assist with your application will help you determine the best argument to use, increase your likelihood of acceptance, and reduce the chances of you needing to appeal the decision.
What If I Have Already Paid The Penalty?
As the availability of first-time penalty abatements is somewhat unknown, many individuals pay the penalty they received from the IRS before they realize that they may have been eligible for an abatement. In this situation, all hope is not lost. You may still be able to recover the costs you have lost by paying the penalty.
If you have already paid an eligible penalty, you can request a refund from the IRS by submitting a refund claim for a refund and request for abatement. Your refund request must be submitted to the IRS within three years of when you filed the original tax return or two years from the date you paid the penalty.
The IRS generally uses decision support tool software to determine if applications are eligible for the first-time penalty abatement. This software has been regularly criticized for returning a disproportionately high number of rejections, including applicants that should be eligible for the relief.
If you have been denied a penalty abatement when you think are eligible, you have the right to appeal the IRS’s decision. To start an appeal, you must file within 30 days of receiving your rejection. Likely, you will be required to provide additional evidence to prove your eligibility for the abatement during your appeal. You may have to be prepared to present a compelling argument and fight for a decision change.
Although an appeal can seem like a tedious and lengthy process, it can save you hundreds or even thousands of dollars in penalty fees that you are eligible for removal of. It is advisable to seek the help of a tax attorney when appealing an IRS decision to give you the best chance of a favorable outcome.
What Happens If I Don’t Pay My Tax Penalties?
Penalties for failing to file and failing to pay taxes can be substantial. These penalties, alongside any interest added by the IRS and your original tax liability, can significantly increase your financial tax burden. Understandably, many individuals struggle to maintain the financial obligations of a tax debt, which can lead to further interest and penalties and a mounting tax bill with the IRS.
The IRS has extensive resources at its disposal and the backing of the federal government. As such, they can employ harsh methods to recover unpaid debts from you. Recovery methods such as wage garnishment, federal tax liens, and even property seizure and sale are commonplace when an individual fails to maintain their federal tax responsibilities.
If you are struggling to pay your tax debt, there may be various methods of tax relief available to reduce your financial hardship. A tax attorney can help you understand the options available to you to ease the burden of your tax debts and protect your property and assets from seizure.
Other Options For IRS Tax Debt Forgiveness And Relief
The IRS fresh start program was established in 2011 to provide some level of debt relief to taxpayers with debt that is significantly more than they can afford to pay.
Tax relief options such as the IRS hardship program, spousal relief programs, and an offer in compromise may all be beneficial tools to help you tackle tax debt and the associated financial hardship.
An installment agreement establishes affordable payments you will make every month towards your overall debt. These payments can be affordable to your circumstances but should clear your debt in full before the statute of limitations expires. Once you have agreed to an installment agreement, you will no longer be subject to IRS penalties and collection letters.
Offer In Compromise
An offer in compromise is an IRS debt forgiveness program. If you are accepted, this program can be used to decrease the total tax debt balance you owe. Through this initiative, the IRS will review your income and expenses and re-evaluate your debt accordingly. If the IRS deems that you can’t afford your debt in your current financial situation, they can propose a reduced total debt amount for you to repay.
Ronald Arthur Stearns Sr. PLLC Can Help With Your IRS Tax Penalties
A first-time penalty abatement is an effective tool to quickly address tax penalties and potential debt before it accumulates and becomes unmanageable. Unfortunately, due to the fact that many people are unaware of this scheme and how many people are unfairly denied, it is not being used to its full benefit.
Even if you have not been completely compliant for the past three years, you may still be eligible for a penalty abatement. A tax attorney from Ronald Arthur Stearns Sr. PLLC could use a combination of a first-time abatement and reasonable cause arguments to have your penalties and mounting interest erased by the IRS. Similarly, for those who paid their penalties before realizing they may not have to, we can help you recover your hard-earned money from the IRS.
Ronald Arthur Stearns Sr. PLLC is here to help you use the somewhat unknown tax debt relief methods available to you to your advantage. Our extensive history and in-depth knowledge of the tax system and IRS programs means we can find the best approach to fit your circumstances and address your tax burden.
Contact Ronald Arthur Stearns Sr. PLLC by calling 210-853-2135 for advice on how one-time tax forgiveness can benefit you.