Anyone can fall on hard times. Moreover, with recent changes to tax regulations, those hard times may have been made harder by a more significant tax debt than someone expected. However, the IRS does provide relief for people in tough situations if they can prove they had good reason to fall short on their tax obligations.
This type of relief from penalties is called a "reasonable cause penalty abatement." It applies in situations where someone tried to comply with IRS requirements but failed due to circumstances beyond their control.
What types of penalties qualify for relief?
Generally, the IRS can provide relief from penalties for:
· Failure to file a tax return
· Missing the deadline to file a return
· Not depositing certain taxes as required
If someone receives notice of a penalty from the IRS, the first step is to ensure the notice is correct. In some cases, incorrect information leads to an erroneous penalty letter. Otherwise, the next step is to determine whether you qualify for reasonable cause penalty abatement.
Who qualifies for relief under reasonable cause abatement?
Reasonable cause relief generally applies when someone used "ordinary care and prudence" to meet their Federal tax obligations but failed to do so because of extenuating circumstances. Examples include:
· Death or serious illness (including that of a close family member)
· Fire or another natural disaster
· Inability to obtain records
Lack of funds to pay a tax debt, by itself, is not enough to get penalty relief. However, someone may be able to show they lacked funds because of a qualifying circumstance.
Proving someone qualifies for reasonable cause relief requires significant planning and documentation. An attorney experienced in IRS debt resolution can help those facing a penalty understand their options and determine the best course of action.