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Tax penalty abatement, part 1: how to push back against penalties

When you run into tax trouble, IRS penalties can hit you hard. After all, penalties for such things as late filing or substantial understatement of your tax liability are stiff. And resolving your obligations to the IRS on the issue that led to the penalty does not necessarily make the penalty go away.

Fortunately, the IRS has a process by which you can seek a lessening or outright waiver or discharge of tax penalties. In this post, we will discuss this process, which is called penalty abatement.

To be sure, not every penalty can be taken away. But as Forbes reported in 2013, millions of penalties are abated each year. In Fiscal Year 2012, for example, out of 37 million tax penalties, the IRS eventually abated about 5 million.

The form you will need to submit is Form 843, Claim for Refund and Request for Abatement. The instructions for this form explain that the request for abatement applies not only to penalties, but to certain taxes and interest, as well as fees and additions to tax.

Working with a tax attorney, you can identify and articulate why the IRS should allow a reduction or removal of your penalty. Financial hardship is a common reason for pursuing an abatement. There may also be some other reasonable cause, such as being a crime victim or the death of a member of your immediate family.

For more information on how to approach the abatement process, please visit our page on penalty reduction or removal.

In part two of this post, we will discuss the procedure for first-time abatement penalty waiver.

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