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​​​​Is There A Way To Abate Penalties & Interest?

That's a great questions. One of the most common questions I get is:

"Can you call the IRS for me, offer them 50 cents on the dollar and settle it right there."

Well, I begin by telling my clients that the IRS cannot just cut the debt, because the law doesn't allow them to do so. 

That said, there are several ways to get to it indirectly.

Principally, if you can't afford to pay it, you can do an offer-in-compromise. You can do a partial payment installment agreement or file for penalty abatement.

Abatement is just a fancy word meaning reduction or elimination of those penalties.

There's two basic ways to abate penalties.

One is called first time abatementand the other is called reasonable cause abatement.

First time abatement.

First time abatement is just what it sounds like (for the very first tax period that you owe).

The tax period, for example for an individual would be for a whole year. If you own a business, the tax periods are quarterly. But, let's assume that you owe taxes for 2016.

To qualify for first time abatement you must have not been penalized the three years before 2016(2013-2015). If you qualify, first-time abatement allows you to eliminate the penalties for that year. 

In this case, you're entitled to eliminate the failure to file and failure to pay penalties, which can be substantial.

Failure to file after 5 months maxes out at 25% of the taxes owed.
The failure-to-pay penalty .5% per month up to 22.5%.

Together, that is 47.5%

On top of that you have interest on the penalties.

So you must not have been penalized for the previous three years for the first year you owe. In this case, elimination of taxes could greatly benefit you.

Reasonable cause abatement.

With reasonable cause abatement, you have to have something that was beyond your control. For example, you are:

  • ill in the hospital.
  • unemployed.
  • unable to file. (all your records got burned, etc.)

Those are much more difficult to get, but sometimes the taxpayer qualifies. So the answer is, the IRS cannot negotiate with you like you would with a business where you say...

"Look, I'll pay you 50 cents on the dollar. Let's settle the matter". 

They won't do that. They can accept an offer-in-compromise and partial payment installment agreement. The 10 year collection statute can expire or abate penalties via first time abatement or reasonable cause abatement.

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