IRS Abatement Letter – How It Can Help You to Avoid Penalties
Most people haven’t heard of an IRS abatement letter. So let me explain how it can affect taxpayers. Initially, after a number of steps have been taken, the IRS is empowered by the constitution to issue penalties when taxpayers are found to have defaulted on their required payments.
The IRS has about 150 different penalties to hand out to tax defaulters. These penalties differ depending on the case and how much the liability amount.
The worst part is that the IRS charges interest on the original penalty, therefore, it usually needs to be contested. When contested, the penalties can be abated and in a number of cases, completely reduced to zero. Contesting these penalties or requesting for abatement is done with an IRS abatement letter.
What Is An Abatement Letter?
It’s a letter written to the IRS requesting that penalties imposed on back taxes owed be reduced or removed completely, with reasonable cause. The reasons for which the IRS can agree to abate penalties on taxes include the following:
- Medical grounds: Illness to self or a loved one whose care stood in the way of making tax payments.
- Lack of proper understanding of the attendant tax laws.
- Bad accounting: This is usually a fault of the accountant in charge.
- Military duty
- Disasters like fires, floods, hurricanes, and the likes.
- Alcoholism and drug abuse problems.
- Sometimes an abatement can be requested if advice from the IRS led to default.
Things You Need to Do After Writing the Abatement Letter
First and foremost, it’s vital to be sure that the reasonable cause for which the abatement is sought is actually ‘reasonable’.
The IRS defines reasonable cause as a situation that presents itself and by so doing prevents the taxpayer from being able to meet tax obligations despite taking reasonable steps to ensure that they meet it. A cause is not reason enough if the effort has not been made to pay the back taxes in question.
The next thing to do once the letter with a reasonable cause is established and written is to ensure that all necessary documents are prepared and attached to it. These documents include the IRS notice, filing of tax returns and IRS document 834 which is the abatement or refund request document. Any documented evidence of the reasonable cause on which the abatement request is hinged needs to be included as well. The delinquent taxes may also be sent along with the documents but that is not a compulsory requirement. Tax attorneys have however suggested that it may cause the application to be looked upon more favorably.
Once the decision to file for abatement has been made and run through a tax lawyer for advice; also through the accountant(s) for their input and all entities involved in the whole tax filing process, it is ready to be sent.
It’s crucial to remember that an IRS abatement letter should be filed as soon as possible and once it is concluded that everyone is on the same page. Although it can be filed after payment has been made, it is best to file abatement requests before making penalty payments. A refund, however, can be requested after though if deemed necessary.
The most important reason why an abatement letter has to be filed on time is that the penalties already earn interest, as well as attract more penalties. Therefore, filing the abatement letter early reduces substantially the amount that may be potentially owed.
The Importance of Professional Assistance
The average taxpayer may not know his or her rights, it’s important to understand them. Seeking a professional’s assistance will increase the odds of a successful tax resolution. Let our Tax Attorney and Enrolled Agents boost your chances of getting favorable results.
Taxpayers found to have defaulted can earn abatement for other reasons apart from those listed above, for example
- Defaulting out of not previously had to file a return
- Not having had a tax penalty for the preceding 3 tax years
- Having paid or arranged to pay all back taxes just before the penalty landed.
- Filing required tax returns or having submitted an extension request before the penalty hit.
These reasons just listed are mostly technicalities and needs to be argued or presented by tax lawyers with good knowledge of tax laws and their applications.
File Extension to Avoid Tax Penalties
As a bonus tip, many people do not realize that the tax penalties they end up having to pay are avoidable by doing minor things, most importantly, filing tax returns on time. Even when the tax payments have not been made, filing tax returns on time protects from a fine of up to 25% – which is the requisite penalty for late filing tax returns. Once the books have been done and it is obvious that paying taxes upfront may be hard, it is best to request an extension or conclude on a payment plan with the IRS in good time. It is, therefore, best to try as much as possible, no matter what is going on to file returns on time when possible.
If these and other prevention steps ever fail due to a good enough reason then a tax abatement letter is the way to go. For cases like this or other tax debt relief issues, the lawyers at Legal Tax Defense always come through for just a fraction of the cost owed.
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