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By Michael S. Anderson of Anderson Tax Law logo for Arizona tax attorney Michael S. Anderson P.C.
  • Penalty abatement request – how to and what you can do if it is rejected

    Penalty Abatement – Reducing IRS Penalty

    The key point in relation to penalty abatement requests and the IRS is that if you don’t ask you won’t get.  The following is a short review of the “asking” process.

    If an IRS penalty is sent to you via the IRS mailed notice system, it is wise to start the penalty abatement process by mail.

    When you get the tax bill in the mail that shows the penalties, write back to the address on the notice and ask for an abatement of the penalty. You can write a letter or use the IRS form 843. Attach to the letter or to the form the bill you recieved. You should also attach any copies of documents that back up your claims. If you do not provide proof, the request will likely fall on very deaf ears.

    Paying the underlying part of the tax with the abatement letter and attached bill is also wise, if at all possible. Be certain to write on the check that the payment is for the tax debt only…not the penalty. If you pay the tax the interest on the underlying tax stops.

    Keep copies of any letters or documents sent to the IRS and ideally send everything by certified mail. The IRS will often “lose” your letter and it’s attached documentation. Send the whole packet again if you get another bill before you receive confirmation of the receipt of your penalty abatement request.

    If the penalty is added as the result of an audit, ask the auditor or a manager to abate them before you agree to the auditors report. If they won’t, than ask the appeals office to drop them.

    If the IRS rejects the request, they should send a notice. (They often do not..no matter how great the story) When you get the rejection notice you can do one of the following:

    File an Appeal.

    This is simply a letter sent to the IRS. This appeal will be handled all by mail or phone and there won’t be any in person meeting.

    Request a transfer of your file.

    Ask that your filed be transferred to the local office. When that happens, ask for a meeting with the revenue officer – convince the officer of your plight.

    Pay and claim a refund.

    You can always pay the penalty, file a form 843 or claim for refund and request for abatement. You can either attach a letter to explain or try to explain it on the form. Remember certified mail.

    If your Form 843 claim is rejected, you can sue in a U.S. District Court or the court of claims. Penalties are not usually large enough to justify the cost of this.

    Offer in Compromise

    An Offer in Compromise is a formal procedure that can be used to negotiate or eliminate any tax, including penalties. There are some rules and these need to be carefully reviewed before filing.

    Bankruptcy

    In many circumstances, IRS penalties are dischargable in chapter 7 and chapter 13 bankruptcy. Get some good advice of course before heading down this path.