Taken from story by Gail Perry: Employees at the Greenwood, Ind., office of the Internal Revenue Service were more than a little surprised when a disgruntled man pointed a gun at a revenue officer saying, “You can’t do this. You can’t take my money like this.” No one was injured and the man was arrested, but it leads one to wonder about a system that brings out such a violent response from someone who clearly wasn’t satisfied with his tax situation.
IRS spokesperson Pat Brummer was at the scene of the Greenwood incident. “That’s not really a good way to negotiate,” she quipped. “We obviously don’t want people to talk to us that way. We want them to talk to us face to face. People need to know they can sit down and talk; there are many avenues to negotiate.”
Penalties are not necessarily easy to have reversed (abated)
Example: an error by the taxpayer in his self-prepared Form 1040 resulted in a late filing penalty of $89,014, a late payment penalty of $41,539, and $26,216 in interest. IRS denied abatement of the penalties due to the gross oversight by the taxpayer. (Spottiswood, U.S. District Court for Northern California, April 24, 2018) Had the taxpayer retained a qualified tax advisor/preparer, it is most likely that the penalties would have been completely avoided in the first place, or worst case, a “reasonable cause” abatement would have been granted due to relying on a CPA or other qualified tax advisor.
The IRS has offered five suggestions for what to include in an explanation letter, to request a waiver or an abatement of a penalty:
- What happened and when did it happen?
- During the period of time the taxpayer was non-compliant, what facts and circumstances prevented the taxpayer from filing a return, paying a tax or otherwise complying with the law?
- How did the facts and circumstances prevent the taxpayer from complying?
- How did the taxpayer handle the remainder of their affairs during this time?
- Once the facts and circumstances changed, what attempt did the taxpayer make to comply?
The other thing is having maintained a clean history. If this is the first time you’ve ever been penalized, that shows you’ve really tried to comply. When the IRS looks at your record, they will be able to see that you’ve never had a problem. See First Time Abate
Excuses, excuses
When arguing for a penalty waiver or reduction based on reasonable cause, each case is considered on its own merits. But here are some examples of successful, and not-so-successful, attempts at penalty abatement.
Excuses that might work
* Natural disasters, like fires, hurricanes, floods, tornados – a non-preventable event that somehow results in an inability to process tax documents.
* An individual responsible for a function necessary to the completion of the tax return is unexpectedly unavailable.
* Tax professional in full possession of the facts gave wrong advice to the taxpayer, who had no reason to have knowledge to the contrary.
* Computer crashes or other computer-related problems.
* Family emergencies, including, but not limited to, illness and death in the family.
* Financial or other hardship resulting from an unexpected emergency.
* Tax or payroll service provider with history of timely filing and payment does not file or pay tax amount on time.
* New business, not aware of responsibility to file.
Excuses that don’t work
* Giving your tax return to a tax professional to mail. “The failure to make a timely filing of a tax return is not excused by the taxpayer’s reliance on an agent, and such reliance is not ‘reasonable cause’ for a late filing under 6651(a)(1).” United States v. Boyle, 469 U.S. 241 (1985)
* Not having enough money. The IRS expects you to plan ahead and budget for your taxes.
* Too young to pay tax. There’s no such thing.
* Assumed that the withholding at work would be enough to cover the tax bill.
But that’s just the tip of the iceberg. Here’s a website with 198 excuses for late filing or late payment (it should be noted that all have been rejected by the IRS or the courts): http://members.tripod.com/Madtbone/tax_excuses.htm
The above link was taken down recently. The data has been modified and expanded and mirrored here: http://traderstatus.com/MadtboneTaxExcuses01.htm
update: The original website is back: http://madtbone.tripod.com/tax_excuses.htm
update: The original 200 excuses website is back: http://madtbone.tripod.com/_themes/tax_excuses.htm
Motley Fool – Reasonable Cause:
http://www.fool.com/school/taxes/1998/taxes980925.htm
Avoid the 10% early IRA withdrawal penalty: click here