The IRS charges (or, assesses) millions of penalties every year. What many taxpayers don’t always know is that the IRS also provides four broad categories of penalty relief for people who qualify and request relief.

The Four Types of IRS Penalty Relief – and How to Know What’s Best for You:

1. Administrative waivers provide relief under specific conditions.

When the IRS grants an administrative waiver, the IRS provides relief from a penalty it would otherwise assess – if your circumstances fit.

For example, in 2012, when many taxpayers were experiencing economic hardship, the IRS provided relief for the failure to pay penalty for taxpayers who qualified.

The most widely available administrative waiver is often overlooked and misunderstood: first-time penalty abatement (FTA) . The IRS grants FTA for people (and, in some cases, businesses) with a clean compliance history.

2. Reasonable cause relief is usually for situations outside of your control.

The IRS grants reasonable cause penalty relief when your facts and circumstances demonstrate that you exercised “ordinary business care and prudence” in determining your tax obligation, but nevertheless failed to comply.

Depending on the penalty, you might also have to prove that you acted in good faith or that your failure to comply with the law was not due to willful neglect.

The IRS determines reasonable cause abatement on a case-by-case basis, treating each tax form and year separately. The IRS often abates penalties based on reasonable cause because of circumstances beyond your control, such as illness, natural disasters, or destruction of your tax records (as long as you didn’t destroy them intentionally!).

3. Statutory exceptions are for specific circumstances.

The IRS waives or abates penalties because of specific exceptions. For example, the IRS won’t assess penalties for people in combat zones. In another example, the IRS will grant exceptions to the estimated tax penalty when:

  • The tax is less than $1,000.
  • There’s no tax liability in the preceding year.
  • You’re newly retired or disabled.

4. If there’s a documented IRS error, the IRS will abate penalties.

The IRS waives penalties when the IRS makes an error. For example, if the IRS incorrectly posted a filing extension, resulting in a failure to file penalty , the IRS would waive the penalty.

This category can also include erroneous written or oral advice from the IRS that you relied on using ordinary business care and prudence.

So, how do you know which one is best?

This is where the expertise of a tax professional comes in. An experienced tax professional can help you understand how your specific facts and circumstances apply to the tax law governing each penalty abatement option.

Learn more about all the steps to properly address IRS penalties.

At Nugent & Associates, we're not just number crunchers. We bring over 3 decades of invaluable certified public accounting and tax expertise to your company – serving as business and financial strategists who can offer such services as tax and financial planning, investment advice, diligent financial records, and help with estate planning.

Even better, we will give you time to focus on what you do best: running the day-to-day operations that drive your business toward success.

Take advantage of our FREE and no obligation business checkup.

We will visit you at your business at a time and day convenient for you, analyze your numbers, discuss your goals and concerns and report back with a complimentary detailed written analysis to help your business succeed!

At Nugent & Associates, we're not just number crunchers. Our people bring decades of invaluable certified public accounting and financial and tax expertise to you – offering tax and financial strategies to individuals such as yourself. If you have any questions or concerns about your own tax, financial or investment matters, please do not hesitate to contact us.

Experienced tax and financial experts are not just for the super rich. At a reasonable fee you too can maximize your wealth and receive professional guidance for retirement, and/or any tax issues you may be facing, no matter your situation, with a tax and financial expert as your consultant.

Contact Nugent & Associates today. We don't charge for phone calls. You may just find you found an ally in your quest to have a great financial future.

After all, at Nugent & Associates, we succeed when you succeed!



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