The Internal Revenue Service (IRS) imposes penalties and interest on an overdue tax debt. These additional expenses can add up in an instant and make your tax bill even more expensive than it would have been if you only paid it on time in the first place!
Fortunately, there are arrangements to reduce or eliminate these extra fees.
Penalty Abatement is a program that allows you to reduce your tax bill if you owe penalties and interest. Penalty relief may be available if:
- You filed your taxes in due time and paid the outstanding balance within the required time period.
- Penalties or interest have been assessed against your tax return.
- You are eligible for penalty abatement based on the type of tax you filed (e.g., income, employment, etc.)
- This article will help you understand how to appeal and reduce your penalty amount.
How Does the IRS Assess Penalties and Interest?
You might think that when you’re late on your taxes, the IRS will easily leave you alone if you pay them what you owe. But the truth is, it’s not that simple!
The IRS does not base penalties and interest on what you can afford to pay or on the amount you owe them. They base it on the time period you took to pay, late payment fees, and program costs incurred by taxpayers due to not paying their taxes in a timely manner.
If you’re not careful, the IRS can assess penalties against you for a number of different reasons. Here are the most common ones:
- Failure to Pay Penalty. This penalty is evaluated when you do not pay enough estimated tax payments by the due date. The penalty is calculated at 0.5% for each month or part of a month that your payment was late.
- Failure To File Penalty. This penalty automatically applies when you do not file your return on time or do not send in all of the information requested in your filing form. There is a failure to file penalty of 5% of the unpaid taxes for each month the tax return is late. The penalty cannot be more than 25% of your due taxes.
Your Tax Debt Accrues Interest
A debt increases at an alarming rate more quickly as interest compounds. In other words, until you pay your bill in full, the IRS essentially adds extra interest charges every day.
Individual taxpayer interest rates are determined by taking the federal short-term rate and increasing it by three percent. The federal funds rate is currently 2%, making the interest rate on tax debt 5%.
Penalty Abatement Reduces or Eliminates Additional Tax Liabilities
Penalty abatement is a way to reduce or eliminate additional tax penalties and interest. It can be used to reduce or eliminate penalties and interest on your tax debt when you cannot pay your taxes in total during the payment period that applies to your income tax return. The IRS uses penalties and interest as a motivational tool to encourage taxpayers to meet their tax obligations.
Penalties are imposed by law, while interest accrues when you have an unpaid balance on your account with the IRS. Liabilities and profit are not always assessed at the same rate. Each may be higher than other types of fees (but lower than others), depending on the type of violation involved and how long it takes you to resolve them with the IRS after being notified.
Once you submit your application requesting penalty relief, contact an experienced tax debt relief professional to help ensure that any outstanding taxes due will be paid off quickly. So they won’t continue accumulating more penalties or interest over time – which could lead to more problems down the road!
Types of IRS Penalty Relief
- First-time Penalty Abatement (FTA)
First-time penalty abatement (FTA) is a program that allows taxpayers to avoid additional penalties and interest by paying the IRS.
The IRS may waive penalties if you have a history of good compliance with tax laws or demonstrated a continuous and substantial compliance period.
- Reasonable Cause Penalty Relief
You may be relieved if you’ve received a penalty notice and IRS interest because of a late payment. Reasonable cause penalty reduction is available if your situation qualifies as having “reasonable cause” for missing the deadline and acting in good faith.
Specific reasons are generally accepted as reasonable by the IRS. These include:
- A severe illness or injury
- An unavoidable absence from home
- A death in your family
- A natural disaster (flooding, fire, etc.) that prevents you from filing your tax return on timeThe first step towards getting this relief is determining whether or not it applies to you at all. If so, call a professional specializing in tax debt relief assistance.
⦁ Statutory Exception Penalty Relief
A statutory exception may entitle you to penalty relief. Common examples of statutory exclusions are:
– Relied on the IRS’ inaccurate written guidance
– Lived in a considered federal disaster area
– Involved in combat-related military operations
You must prove with complete documentation that an unforeseen circumstance has caused you to fail to meet your tax obligations.
Ways to Avoid Penalties and Interest in the Future
Paying your taxes in full and filing returns on time are the key to avoiding penalties and interest. Paying your taxes entirely means you won’t have to worry about paying off any balances with an installment agreement.
In addition, filing accurate tax returns will prevent you from having to file amended returns or pay back taxes later down the road.
If you’ve been late or made a mistake with your tax filings, you must take advantage of IRS Penalty Relief program. This IRS payment arrangement is one of the few ways that tax filers can get relief from paying penalties due to their own mistakes or oversights regarding their taxes.
Getting a tax expert is the first step in controlling your taxes. They’ll be able to figure out how much you owe and if any options exist for paying it back. They’ll also be able to advise you what kind of penalties or interest charges may apply if you don’t pay on time.
If you don’t have any specific tax debt relief firm in mind, ensure they’re certified by the IRS before giving them any personal information or money.
You might think that because you’re already dealing with the IRS, there’s no way to make things worse. But, if you ignore the penalty, it will grow. And then you’ll have to pay more than if you’d just contacted a tax debt relief expert immediately!
Check: Are You Looking for A Tax Debt Relief Agency? Here’s What You Need to Know
Penalty Abatement can reduce or eliminate additional tax penalties and interest.
IRS penalties are a standard part of the tax system. They can be a root of frustration and anxiety for taxpayers, but help is available in the form of penalty abatement.
If you received a letter from the IRS stating that you owe additional taxes because of an error made by an IRS employee or because there was no response to their request for information, then it’s time to contact us today! Over the years, we’ve worked with both individuals and businesses who want relief from these penalties so they can move forward without having this hangover on their shoulders.
Don’t waste any minute and schedule your FREE consultation with our 833IRSHelp tax professionals today!