Understanding IRS Penalty Abatement: Who Qualifies and How To Apply

You may receive a financial penalty if you file your federal taxes late, pay the incorrect amount, or fail to submit your return. Thankfully, IRS penalty abatement waives or reduces taxpayer penalties in certain situations. This post addresses tax penalty abatement, including what types exist and how to qualify.

What Are Common IRS Penalties?

The IRS commonly imposes the following penalties on taxpayers who fail to comply with tax laws:

Failure to File 

If you miss the quarterly or annual deadline for filing your federal taxes, you may face a Failure to File Penalty. Late filing penalties depend on when you file your taxes and how much you still owe. The IRS charges 5% of your unpaid taxes each month your tax return is late. This penalty will not exceed 25%.

Failure to Pay 

If you file a return but don’t pay the correct amount, you may receive a Failure to Pay Penalty. The penalty percentage is significantly lower for failing to pay than for failing to file. The IRS charges 0.5% of your unpaid taxes for each month you do not pay in full. Like Failure to File, the maximum Failure to Pay Penalty is 25%.

If your employer doesn’t withhold federal income tax from your paycheck, you are responsible for making quarterly estimated tax payments. If you do not, the IRS may impose insufficient federal withholding penalties.

Failure to Deposit

If you own a business and fail to pay employment taxes, pay the wrong amount, or file them incorrectly, the IRS may impose a Failure to Deposit Penalty. The penalty is a percentage of the taxes you did not deposit on time, which increases the longer you are late:

• 1 to 5 days: 2%
• 6 to 15 days: 5% 
• More than 15 days: 10% 
• More than 10 days after receiving a notice: 15%

The IRS also charges interest on penalties until you pay your balance in full.

What Is IRS Penalty Abatement?

You are not necessarily out of luck if you receive an IRS penalty. The agency offers several options for penalty relief, also known as penalty abatement. The IRS can remove or reduce your penalties if you meet certain qualifying conditions.

What IRS Penalty Abatement Options Are There?

The following are the two most common IRS penalty abatements:

First-Time Penalty Abatements

Taxpayers with a history of good tax compliance may qualify for first-time penalty abatement and administrative waiver. You must meet the following criteria to qualify:

• No tax penalties in the previous three years 
• Current on filing returns
• Current on paying taxes (including payment plans)

Reasonable Cause Abatements

A reasonable cause abatement relieves taxpayers with a good reason for not paying taxes properly. The reasonable cause abatement requires you to show that your failure to comply was due to circumstances beyond your control. Reasonable causes may include the following:

• Natural disasters (like fires and floods)
• Civil disturbances
• Serious illness or death of the taxpayer or immediate family

How Can I Apply for IRS Penalty Abatement?

You can request penalty abatement by contacting the IRS by phone or in writing.

• By phone: Sometimes, you can receive an answer immediately by calling the IRS. Make sure to request the agent’s name and number and follow up in writing.
• By filing Form 843: This form allows you to indicate which penalty you want removed or refunded. You’ll also need to explain why you qualify for IRS penalty abatement.

Contact Levy & Associates for Tax Penalty Help

If you received an IRS penalty, contact the tax professionals at Levy & Associates today to discuss your legal options. Call 800.TAX.LEVY or fill out our online form for immediate assistance.