Did you know that the Internal Revenue Service (IRS) can charge taxpayers with any one of over 144 different tax penalties? If you’re facing expensive tax penalties, you may feel like there’s no way out. But actually, there are systems in place to help you get those tax penalties waived. Read on to learn how to negotiate with the IRS.
What are tax penalties?
Tax penalties are financial consequences (usually in the form of interest charged) for tax infractions, such as unpaid or overdue taxes).
Some of the more common penalties that you might face include:
- Failure to file taxes.
- Late payment of taxes.
- Underpaying estimated taxes.
- Substantial understatement of taxes.
- Negligence or intentional disregard for paying taxes.
Getting tax relief from IRS tax penalties can be complicated. However, there are steps that you can take to reduce or remove your tax penalties.
How to get tax penalties waived
For first-time infractions: Call the IRS
As simple as it sounds, the first step you should take is simply asking the IRS to waive your tax penalties. It may sound too good to be true, but if this is a first-time offense, your chances are good.
Before you call
Before hopping on the phone with the IRS, gather the following documentation and information:
- The IRS notice of your tax penalty.
- The tax return in question.
- Your social security number.
- Your filing status.
Also, make sure that you’ve filed all relevant tax returns. If you’re being penalized for a late tax return and you still haven’t filed the return when you call the IRS, you won’t get your penalty waived.
What to say
What do you do once the IRS agent picks up? First, let them know that you received a letter charging a tax penalty and that you’d like to have it waived.
Once they’ve verified your identity and confirmed the infraction, they’ll probably tell you that they can’t waive the penalty. Don’t be discouraged. Press on and ask if you can take advantage of “first-time penalty abatement.” Be sure to use those exact words! If it’s your first time incurring such a penalty, they should waive it.
However, you can only use this strategy once, so make sure it doesn’t happen again!
For clerical errors: Call the IRS
The same strategy also works if your tax penalty was made in error — for example, if the IRS made an arithmetic error. These situations are rare, but they happen. If the mistake happened on the IRS’ side, they will definitely waive the penalty.
For repeat offenses: Call in the big guns
If you’ve repeatedly incurred tax penalties for underpaying or filing late, it will be difficult to get the penalty waived. Your best chance is to enlist the aid of a tax relief professional.
A tax attorney can assist you with actions such as filing delinquent taxes, dealing with a tax lien, negotiating an offer in compromise, and releasing wage garnishments.
These trained experts know the ins and outs of tax law and are experienced in negotiating with the IRS. They will help give you your best shot at getting your tax penalties waived, or at least reduced.
What if you can’t afford to pay?
If you can’t afford tax relief, there are a few organizations that might be of service.
Taxpayer Advocate Services (TAS) is an independent organization within the IRS that reports to the National Taxpayer Advocate. It was designed to assist taxpayers who are experiencing economic harm, such as an inability to provide daily necessities (i.e. housing, transportation, food). TAS offers taxpayers assistance in resolving IRS problems that they haven’t been able to resolve through normal channels.
The Office of Appeals is another taxpayer advocacy organization, which acts as an “informal administrative forum” to help with tax law disagreements. It is independent of the IRS in order to provide “fair and impartial” services, both to the taxpayer and the U.S. government.
If you need help and can’t afford a tax attorney, investigate these public resources.
How to get tax penalties reduced
If the IRS refused to waive your penalty, you’re not out of options. You can still reduce the damage that the penalties will do.
Set up an installment agreement
If you’re being penalized for unpaid taxes, call the IRS and ask to set up an installment agreement. What is an installment agreement? It’s a payment plan that lets you pay your overdue taxes in a series of monthly payments.
When you set up an installment plan with the IRS, they will cut your penalty in half. That means you’ll pay half as much interest on your debt.
Negotiate penalty abatement
If you have reasonable cause — in other words, an excuse that the IRS considers sound — for your tax infraction, they may reduce your penalty. Such reasons might include:
- A serious medical emergency.
- A death in the family.
- The inability to obtain records required to file your taxes (e.g. your employer never sent you some necessary forms).
If you failed to file or pay your taxes because of difficult life circumstances that rendered you unable to pay, you likely have reasonable cause. In these cases, it’s worth calling the IRS to negotiate a reduction of your penalties.
In both of these cases, it might be worth enlisting a trained tax professional to negotiate on your behalf. Tax professionals know the language which best appeals to IRS agents. And they know all of the legal loopholes which will let you get the best possible result.
Where should you start?
Not sure where to start? Calling the IRS and requesting that they waive your penalty is a great first step. If that fails, it may be time to enlist the aid of a great tax relief company. The best tax relief companies have tax lawyers and enrolled agents on staff, provide a money-back guarantee and charge competitive rates. They can help you to negotiate with the IRS to get those penalties reduced or removed entirely.