IRS Tax Penalties May Be Waived Using This One-Time Tactic

by | Aug 7, 2023 | IRS

According to tax professionals, there are some circumstances in which you may be able to have IRS tax penalty notice fees waived.

Otherwise compliant taxpayers can receive relief under the less well-known first-time penalty abatement.

“It’s like a get out of jail free card,” remarked Rosemary Sereti, managing director of Deloitte Tax and a former senior official of the IRS.

At the annual meeting of the American Institute of Certified Public Accountants in Las Vegas, she noted that “not every taxpayer qualifies,” though.

Common individual tax penalties include failure to file, which carries a 5% monthly (or partial monthly) penalty on unpaid taxes up to a maximum of 25%, and failure to pay, which carries a 0.5% monthly penalty up to a maximum of the same proportion.

“Very frequently, these two penalties run together,” said Debra Estrem, managing director of private wealth disputes at Deloitte Tax and former employee of the IRS Office of the Chief Counsel.

For instances of “negligence or disregard,” another cost known as the accuracy-related penalty is normally assessed at 20% of the underpayment amount, according to the IRS. Occasionally, the cost can increase to 40%, according to Estrem.

Additionally, there is a steep penalty for civil fraud — “a whopping 75% penalty” — but the IRS bears the “burden of proof” in those situations, she added.


How To Be Exempt From IRS Penalties

Failure to file, failure to pay, and failure to deposit are three penalties that may be eligible for a first-time abatement, according to the IRS. But if they didn’t file a return, the majority of taxpayers won’t be eligible, according to Sereti.

The IRS also demands a history of timely files, payments, and no-penalty tax compliance. She explained that you must have a “clean record” for the previous three years and be a good taxpayer who made a single error.

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About Daniel T.A. Cotts

Daniel is a skilled Tax Attorney who moved to Corpus Christi in 2019 to expand his practice and return to Texas. With over 26 years of experience in the legal profession, Daniel brings a wealth of knowledge of Taxation, IRS Dispute representation & resolution, Estate Planning, Accounting, and Business & Contract Law to South Texas.


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