Abatement of IRS Tax Penalties/Interest
IRS tax penalties can often exceed the amount of the underlying IRS tax debt.
In general the IRS imposes penalties when taxpayers fail to submit timely tax returns, submit false or fraudulent tax returns or make other false statements, disregard tax laws, understate the amount of tax owed or the value of property sold, and/or fail to pay taxes when the tax becomes due. The amount of the IRS tax penalty can range from less than 1% to 100% of the underlying IRS tax debt. Some penalties accrue monthly and others are only imposed once.
Interest on tax debts begins to accrue from the time that the tax liability was to be paid, which is typically the date on which the tax return was filed or should have been filed. The IRS often waits many years before notifying taxpayers and taking actions to collect unpaid taxes. This delay can result in the tax debt incurring a large amount of interest. This interest is then added to the underlying tax debt and is fully collectable by the IRS.
The most effective way that taxpayers can reduce or eliminate IRS tax penalties and interest is to show that they do not owe the underlying tax liability. In some cases the law requires that the IRS remove penalties and interest. For example, the law specifies that the government is not entitled to interest in cases where there is an unreasonable delay that is attributable to the government, in certain cases where the taxpayer relied on bad advice from the government, or in certain circumstances where the taxpayer is not timely notified of his or her tax liability.
If the taxpayer does not fit within one of those situations then they may be able to negotiate with the IRS to reduce or abate tax penalties and interest. The IRS may be willing to reduce or abate tax penalties and interest if the taxpayer can show that they made an honest mistake. In some cases it is incumbent on the taxpayer to request that the government remove the interest.
The interest rules can be complex. This complexity results in the IRS collecting more in interest than it is entitled to collect. An experienced tax attorney can help to ensure that you do not pay penalties and interest to the government that it is not entitled to collect.
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