Can You Ask the IRS to Waive Penalties and Interest?

You can request a penalty reduction or exemption from the Internal Revenue Service (IRS) by calling the toll-free number listed on your IRS notification, or your tax advisor can call the specific hotline for tax professionals or the compliance unit (if applicable). The IRS may administratively exempt from a penalty that would otherwise be applied under its penalty reduction policy for the first time. Taxpayers can also request an exclusion from the penalty when filing their tax return (people use Form 22).If there is an unpaid balance left in your account, interest will continue to accrue until the account is fully paid. Interest cannot be reduced for a reasonable cause, but the interest charged for a penalty will be reduced or eliminated when that penalty is reduced or eliminated.

Individuals who wish to request that their tax debts be relieved in this way should be aware of the circumstances that apply to the exemption from penalties and interest on back taxes. Write a letter to the IRS requesting a penalty exemption. State the reason you were unable to pay and provide copies, never of the originals of the documents you submit as evidence. You must mail the letter to the same IRS address where you are notified of the penalty charges. If you prefer, you can also talk to an IRS representative by phone.

Be very careful with any promise or testimony that the IRS will exempt you from all penalties and interest. The IRS staff answering the call should be able to open the customer's account, determine if the FTA criteria are met, and apply the exemption during the call. If they qualify but the IRS representative says no, ask them to override the Reasonable Cause Assistant (RCA) determination. The IRS will consider any solid reason not to file a tax return, make a deposit, or pay taxes in due time. If they can meet one of these criteria and can justify it with sufficient documentation, such as a police report, check receipts, death certificate, or other documentation, individuals can request that they be exempted from fines and interest from their tax liability. To ensure consistency among all requests for reduction of fines, the IRS must create a more uniform policy to eliminate errors caused by relying on its RCA and train assigned staff to review requests for reduction of fines.

The IRS representative can accept “credible” information orally or in writing. Unfortunately, most taxpayers who are fined by the IRS do not apply for help or are denied because they don't follow some basic rules that should and should not be done. To uniformly apply fine reductions, the IRS developed a decision-making support software program called Reasonable Cause Assistant (RCA).In short, you will be asked to tell your story to the IRS, including the circumstances that led to and during the accumulation of your tax debt, and request a reduction or elimination of fines. The IRS assumes an essential duty to collect taxes for the government. Even so, you don't have full power to forgive and exempt interest and late tax penalties.

Many situations are judged individually to determine if they meet certain criteria to exempt these amounts. If they owe back taxes because their return was improperly prepared by a service of their choice, people cannot use this as an excuse to have their fines and interest forgiven. The IRS will continue to try to collect what you owe but may be willing to exempt or reduce penalties if you can show that you have a good reason. Remind them that even though an FTA does not apply, you have a clean record of compliance except for one incident of non-compliance. Be aware that Jim is also the author of the Tax Problems and Solutions Handbook which aims to help tax professionals work more effectively on post-filing issues and resolve their clients' most common tax problems.

Kirk Streets
Kirk Streets

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