Basic Tax Abatement Information
Almost all IRS tax and tax penalty assessments that were later reduced resulted from taxpayer initiative -- the filing of abatement requests -- rather than reconsiderations initiated by the IRS. The reasons for abatement the IRS commonly accepts and the procedure for filing the abatement request are contained in its IRS Penalty Handbook. The abatement form, "Form 843, Claim for Refund and Request for Abatement," can be ordered by mail using the same IRS address shown on your penalty correspondence or, more conveniently, downloaded from the website.
Tax Penalty Categories
Forbes divides most IRS tax penalties into two categories: collection penalties for unpaid taxes of late federal tax deposits and penalties related to inaccurate returns. Penalties are based on a percentage of the unpaid, underpaid or understated taxes, and typically range from about 15 percent, the penalty for late deposits, to 25 percent of unpaid taxes. In general, the IRS assesses heavier penalties for unpaid taxes than for understated returns.
Tax Abatement Reasons Often Accepted by the IRS
The IRS offers many reasons for tax abatement. Underlying them all is the theory of "reasonable cause" --the taxpayer failed to pay taxes fully and promptly, but exercised a reasonable degree of care and prudence in the failed attempt. Some reasons the IRS often accepts as reasonable are:
• The IRS gave the taxpayer inaccurate verbal or written advice • The taxpayer was unable to obtain tax records • The taxpayer suffered a serious illness or unavoidable absence. • The taxpayer died before returns were filed • The taxpayer, for some good reason, such as old age, forgot to meet a deadline • Unusual circumstances created a personal hardship • The taxpayer lives in an official disaster area
Surprisingly, perhaps, despite the fact that in most courts ignorance of the law is not an acceptable excuse for violating it, the IRS also accepts "ignorance of the law" as a possible reasonable cause.
Some Tips on Filing Form 843
The basic idea when filling out Form 843 is to state clearly and concisely the reasons you underpaid or failed to pay your taxes. Following a few simple procedures, however, increases your chances of an abatement:
• The IRS, which as of this writing is severely understaffed, relies on computerized readings of applications to make its initial decision. Therefore: think like a computer and be very literal-minded. Don't write "I've been really sick recently"; instead, write "For 7 months of the tax year, I was seriously ill, under medical care and unable to work. Attached are medical and hospital bills related to this illness."
• Tie each assertion to the relevant paragraph of the IRS Penalty Handbook. Do the work for the IRS employee, who can process and approve your claim without having to do her own research.
• Submit verifying documents, such as hospital bills, and refer to those documents in your Form 843 statement.
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