Penalty Abatement

At Pearson Butler, we have decades of experience serving individuals, businesses, and families across Utah in over a dozen practice areas. With more than thirty qualified legal professionals, we have the resources and experience needed to resolve even the most complex legal matters.

Penalty Abatement

How a Utah Tax Lawyer Can Mitigate & Avoid Tax Penalties

Anyone who has ever owed money to the IRS can confirm it is a difficult type of debt to pay off in full. Interest and other penalties are added to an individual's original tax debt, and that is why tax experts recommend paying off tax debts as quickly as possible. The IRS has a variety of very unpleasant collection techniques at their disposal. These techniques include wage garnishment, seizure, freezing bank accounts, property liens, and in some cases, the ability to seize real and personal property.

The right approach to tax debt can mitigate or remove penalties. Contact the Utah tax attorneys at Pearson Butler to discuss penalty abatement and whether it may apply.

How Does a Person Manage to Get into Debt with the IRS?

Unmanageable debt usually mounts when a person doesn't pay their taxes on time, fails to file their tax forms in a timely manner, or doesn't make payments as agreed. Penalties are also added when individuals who are on payment plans fail to meet their obligations.

During 2012, there were 38 million cases involving penalties levied against taxpayers that amounted to nearly $27 billion. It's important to understand that it's not just interest that's increasing a tax bill because the IRS also adds civil penalties and fines that can make the amount owed grow very quickly. It is a difficult situation for any taxpayer, and it may feel like it's impossible to ever escape from the endless loop of increasing debt.

Individuals with tax debt usually have a lot of questions and wonder if there's any way to settle their IRS debt once and for all. Here is a list of some commonly asked questions about the process of penalty abatement and arranging a payment plan with the IRS.

What Is Penalty Abatement?

In simple terms, this means the Internal Revenue Code allows for the removal of penalties associated with the late filing of taxes, the late payment of taxes, or the late deposit of taxes. The fines aren't intended to create extra funds for the government, but rather to discourage people from not paying their taxes on time and in full. However, it's very important to understand that the IRS isn't required to remove interest, fines, and penalties.

What Are the Requirements to Be Granted Penalty Abatement?

In theory, penalty abatement is a one-time process, but the slate is clear tax-wise after a three-year period, so the Clean Penalty Rule only applies to the prior three years of the taxpayer's history. An example of this would be a person with a tax payment issue in 2009 who asked for and received penalty abatement. Because enough time has passed, this person would be allowed to ask again, and if his or her circumstances qualify, receive another penalty abatement for a more recent case.

Reasonable cause must be shown for a penalty abatement to be issued. The IRS considers job loss, major illness, and natural disasters as some of the possible reasonable causes for not filing or paying taxes.

There's a cap on the amount the IRS will abate, and this amount isn't published. This is a place where a tax resolution law firm may be helpful because they have experience working with the IRS and have an idea what will realistically be waived from a tax debt.

Penalty abatement is for a single tax period. For example, if a person hasn't filed a tax form for 2011, 2012, and 2013 and has penalties for all those years, only 1 year is eligible for a penalty abatement request. In addition, the other years must be in compliance before filing a request for one of the years in question. The year the individual requests penalty abatement for is likely to be the one with the highest amount owed.

How Do I Qualify for an Installment Agreement?

Once the deal is made to eliminate some or all of the penalties, what happens if it's still too much to pay in one lump sum? Generally speaking, if an individual owes less than $50,000, a payment plan can be applied for online. It will often be granted if all past due tax forms have been filed. All future federal tax refunds will be applied to the debt, and at least the minimum monthly payment must be made on-time each month. During the time of the payment plan, all other taxes must be filed and paid on-time.

Why Work with an Attorney During an Installment Agreement?

Working with the IRS can be overwhelming and confusing for an individual. An experienced tax attorney will understand all the paperwork and will be familiar with negotiating with the IRS. Pearson Butler doesn't assign clients to a paralegal or simply file forms with the IRS. Clients meet with an attorney who listens carefully to their situation and helps create a plan that will best serve their needs.

A Brief Overview of the Penalty Abatement Request Process

The process begins when the taxpayer files an IRS Form 843, and the only requirement is the request be made in writing. It then goes to an IRS service center. Voluntarily stepping up and trying to settle the issue and acting responsibly to pay the debt will help the case. Be sure to include any supporting documents and carefully explain the issue that caused the taxes not to be paid on time. An appeals officer is assigned to each case, and it's his or her decision whether the situation warrants a penalty abatement or installment arrangement. This is a rare opportunity for an individual to put a human face on the issue, so explain the reasons behind not being able to pay in full and show the appeals officer a plan that will help resolve the situation.

However, it is important to understand the IRS generally uses the Reasonable Cause Assistant, which is an automated program that is designed to allegedly simplify the process of who is eligible for the penalty abatement process. However, some glitches in the software have caused controversy. A report has stated that in 2011, 55% of all the requests that went through the system were given an incorrect determination. Therefore, it's not terribly unusual for an individual to get a denial even if he or she really is eligible for a penalty abatement. This is also a point where a debt resolution law firm can be of assistance because appealing an automated denial can be difficult for an individual to handle.

Why Work with Pearson Butler?

When you come to Pearson Butler for guidance regarding penalty abatement or any tax-related issue, you will receive an honest assessment of your individual situation and a plan that is reasonable and doesn't create unrealistic expectations. Your attorney can also quickly put an end to IRS collection activity while the case is being negotiated.

Call Pearson Butler today at (800) 265-2314 to learn more.

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