Penalty Abatement

The IRS offers two types of standard penalty abatements: first time and reasonable cause. Every Federal resolution offered at Simple Tax Solutions includes a standard penalty abatement should you qualify.

The IRS has a handful of penalties that they charge but there are two in particular that we are referring to when we talk about penalty abatements. Those are failure to file and failure to pay. The failure to file penalty is 5% of your tax due for every month or part of a month the return is outstanding. Of the two, this is by far the larger penalty which is why you should always file timely even if you have a balance due. If you are filing late you should file as soon as possible since the penalty stops accumulating as soon as the return is received.

The failure to pay penalty is only ½ of one percent of your tax due and continues to accumulate until the balance is paid in full. That might not seem like much, but it adds up fast because the IRS charges compounding penalties and interest. That means that when they charge you penalties and interest, they add it into your original balance and then the next time they charge you penalties and interest they do so on that new higher balance. All of which means penalties can start to account for a significant portion of your balance.

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Penalty Abatement Papers

Now back to the abatements themselves. The most common is a first-time penalty abatement. Whether or not you qualify for this depends on your compliance history. As the name suggests this is a one-time waiver which means technically you only get one per lifetime. It’s also important to keep in mind that this is only a waiver of one tax year’s penalties so it’s not a full wipe clean.

The second type of abatement is called reasonable cause. It covers every situation possible provided you exercised all ordinary business care and prudence to meet your tax obligations. This is the IRS’s fancy way of saying you did your best to file and pay your taxes timely but something outside your control came up that prevented you from doing so. This type of abatement can cover several years but it’s not necessarily a full wipe clean either. They generally only abatement the penalties on the years in which you can prove the circumstances were present.

Altogether penalties can get out of control fast. That’s why we provide a penalty abatement for every client who qualifies. Give us a call today for your free consultation to find out everything we can do for you.

Standard Penalty Abatements

First-Time Abatement

Removes Failure to File and Failure to Pay Penalties

One-time per Taxpayer

Only Applies to One Tax Year

Requires Compliance in Prior Three Years

Reasonable Cause Abatement

Removes Failure to File and Failure to Pay Penalties

Can Apply to Multiple Tax Years

Requires Extenuating Circumstances

Requires Detailed Paperwork and Supporting Documentation

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