Perhaps you failed to file your tax return on time. Or maybe you filed on time but did not send your payment promptly. Whatever the reason, you’ve requested a penalty abatement, and the Internal Revenue Service has rejected that request. Why was it rejected, and what should you do now? Read on for more information about penalty abatements and the process of appealing a rejection of a penalty abatement request.
Penalty Relief From the IRS
The IRS may impose penalties for a number of reasons. Sometimes, they will agree to waive those penalties. Some of the conditions eligible for penalty relief include:
- Failing to file a tax return
- Failing to make a tax payment on time
- Failing to deposit certain taxes as required
- Other penalties that the IRS deems eligible due to the taxpayer’s circumstances
There are three ways that penalty relief can be granted:
- Reasonable cause: The IRS will consider any sound reason offered when determining whether to waive your penalties. Examples of some of the reasonable causes for failing to file a return or pay the amount of taxes you owe include fire, natural disaster, or other disturbances; inability to obtain the records you need to file your return; death, incapacitation, or unavoidable absence of the taxpayer or a member of his or her family; another reason for which you used ordinary prudence to meet your federal tax obligations but were unable to do so.
- Administrative waiver: An administrative waiver can be requested if you have failed to pay your tax bill on time or to file a return if you have not had to file a tax return before or you’ve had no penalties for the previous three years of filed returns; you have filed all currently required returns or you have filed an extension on your current return; you have paid or arranged to pay any tax that is due.
- Statutory exception: If the IRS provides incorrect advice about filing your return or paying taxes that are due, you can request penalty relief through a statutory exception. In order to qualify for this relief, you must present a copy of your written request for advice, the erroneous written advice you received from the IRS; and the adjustment of your return or any correspondence you have received from the IRS about a penalty that was based on the actions you took due to the erroneous advice.
Reasons Why Penalty Abatement Requests Are Rejected
Failure to file and failure to pay are the most common reasons why the IRS penalizes taxpayers. Many taxpayers fail to get penalty relief because they don’t know to request it. Unfortunately, many taxpayers also fail to get relief because the IRS rejects their request. When making a request, the taxpayer must identify which of the reasons listed above — reasonable cause, administrative waiver, or statutory exception — they are requesting the relief, as well as details of their situation.
Most often, abatement requests submitted for reasonable cause. The IRS uses a software program known as a reasonable cause assistant to determine if the taxpayer’s situation applies. The IRS employee uses the reasonable cause assistant to determine which qualifying factors for relief are present based on the letter or Form 843 that has been submitted by the taxpayer. This software assistant was designed to ensure that the IRS employees were providing a uniform response to taxpayers who are requesting relief. However, the tool does not allow for a complete look at the taxpayer’s circumstances and does not allow for further questions to be asked of the taxpayer before the determination to accept or reject the request is made. This results in individuals receiving a rejection of their request when they actually have a qualified reasonable cause as to why they did not pay or file their return on time.
The Appeals Process for a Penalty Abatement Request
Before appealing, it is important to carefully read the information provided in the notification of your penalty that was sent to you by the IRS. Make sure that all of the information is correct. If the penalty is a result of inaccurate information and can be resolved over the phone, contact the toll-free number provided to you with your notice.
You have 30 days to file an appeal after receiving the notification that your abatement request has been rejected. Appeals can be filed only if all of the following circumstances are true:
- You received a letter from the IRS notifying you of a penalty that was assessed due to failure to file your return or failure to pay the taxes you owe on time.
- You sent a written request to the IRS, asking them to relieve you of this penalty.
- The IRS denied your request for penalty abatement.
- You received a Notice of Disallowance, which grants you appeals rights.
File a Written Protest
In order to appeal the rejection of your penalty abatement request, you must request an appeal by filing a written protest. This protest should be sent to the address the IRS provided in its notification that it was rejecting your request. This will allow the office that made the determination to deny your request to take a second look and attempt to resolve your issue. If the issue cannot be resolved, your case will be forwarded to the service’s office of appeals for consideration. You can have the representation of an attorney or certified public accountant for the appeals process. However, if this individual will be communicating with the IRS on your behalf, you must file a power of attorney, granting permission for the attorney or accountant to receive your personal tax information.
Appeals conferences are informal and can take place over the phone, in-person, or virtually. After the appeals conference, you should receive notice of a decision from the IRS within 120 days.
An Experienced Tax Attorney Can Help With Your Penalty Abatement Request
If you are planning to appeal the rejection of a penalty abatement request, it is strongly recommended that you seek the guidance and assistance of an experienced tax attorney who not only understands the applicable laws governing the Internal Revenue Service, but is also well aware of the process required in order to have a successful outcome in your case. For more information, contact us.