Do You Qualify for Penalty Relief from the IRS?

Offshore Account Update

Posted on April 15, 2022 |

If you are behind on your federal income tax obligations, you are responsible for interest and penalties in addition to the taxes that you owe. But, you may also qualify for penalty relief from the Internal Revenue Service (IRS). Here, New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses the eligibility requirements for penalty relief, as well as some of the options you may have if you don’t qualify.

When Do U.S. Taxpayers Qualify for Penalty Relief from the IRS?

The IRS affords penalty relief to U.S. taxpayers who are unable to meet their tax obligations due to circumstances beyond their control. Penalty relief is available to qualifying taxpayers to abate penalties including:

  • Failure to file penalty
  • Failure to pay penalty
  • Accuracy-related penalty
  • Underpayment of estimated tax penalty
  • Other penalties “as applicable”

U.S. taxpayers have three primary options for seeking penalty relief. These are:

1. Reasonable Cause

The IRS grants penalty relief to taxpayers who can establish “reasonable cause” for their failure to file or failure to pay. It determines reasonable cause on a case-by-case basis, and it is up to taxpayers to prove that they qualify. According to the IRS, examples of reasonable cause may include:

  • Fire or natural disaster
  • Inability to obtain records
  • Serious illness or incapacitation
  • Death of an immediate family member
  • Unavoidable absence of the taxpayer or an immediate family member

2. First-Time Penalty Abatement

Taxpayers who are facing penalties for the first time (or the first time in a while) can seek relief under the IRS’ First Time Penalty Abatement policy. To qualify, taxpayers must (i) have no penalties from the three prior tax years; (ii) have filed all currently required returns or filed timely extensions; and, (iii) have paid, or arranged to pay, any tax due.

3. Statutory Exception

The statutory exception to penalty liability is available to taxpayers who have underpaid as a result of receiving incorrect written advice from the IRS. To qualify, taxpayers must have requested and received written advice from the IRS, and they must be able to demonstrate that their reliance on the IRS’ advice is the reason for their filing or payment violation.

These options, of course, are only relevant if you actually owe a penalty. If you have been improperly penalized by the IRS, you will want to speak with a New Jersey tax lawyer about challenging the IRS’ determination of liability.

What if You Don’t Qualify for Penalty Relief?

What if you owe penalties to the IRS but you don’t qualify for penalty relief? You will want to speak with a lawyer in this situation as well. While you may need to request an installment plan or delayed collection, you may also qualify for an offer in compromise. If you qualify for an offer in compromise, your lawyer will be able to negotiate with the IRS on your behalf.

Request an Appointment with New Jersey Tax Lawyer Kevin E. Thorn

If you need more information about how to deal with IRS penalties, we encourage you to get in touch. Please call 201-355-8202, email or contact us online to request an appointment with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.

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