Fortunately, there are relief provisions that can help eliminate or otherwise reduce penalties that have been assessed; this is referred to as penalty abatement. Unfortunately, these provisions are not automatic and the relevant standards are often difficult to meet. However, you can obtain relief where you can demonstrate that it would be unfair to assert additional amounts because certain underlying circumstances had existed, or currently exist.
The criteria for penalties to be abated, is predicated upon the “reasonable cause” standard. This standard states that despite the fact the taxpayer exercised business care and prudence, something unforeseen or extraordinary occurred, and that consequently caused the conditions in which the penalties were assessed.
Whether both “reasonable cause” and lack of “willful neglect” exists is a question of fact, and the burden of establishing these facts is on the taxpayer. Relief from the failure to file penalty will only apply to the portion of the penalty for the period the taxpayer meets relief criteria.
Often, the IRS will abate penalties for:
- Death or serious illness of the taxpayer or family member
- Destruction by fire, earthquake or hurricane or other casualties
- Inability to determine taxes due for reasons beyond the taxpayer’s control such as reliance upon specific individuals for advice
The abatement of penalties is considered on a case-by-case basis. Unfortunately, with few exceptions, there are generally no predefined standards that can be applied. However, there are listings that exist, that include prior penalty abatement requests that will generally be rejected. For this and similar reasons, it is strongly recommended that you employ the services of a knowledgeable tax consultant in the consideration of your individual circumstances. Lefstein-Suchoff CPA & Associates has had tremendous success with abatement of penalties for reasonable cause.