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Penalty Abatement

Taxing authorities propose penalties for all types of late-filing, late-payment and other failures. However, most types of penalties can be contested and abated if reasonable cause, statutory exceptions, or other criteria exist to explain the prior failures.

The most common reason for IRS abating penalties is the taxpayer demonstrating that reasonable cause existed in their situation. This means that the taxpayer can demonstrate that despite an effort to remain in compliance with the filing and/or payment obligations, they were unable to do so because of some event or condition. Acceptable causes that have warranted penalty abatement in the past include:

  • reliance on a tax professional;
  • ignorance of tax law;
  • medical illness to one's self or to a family member;
  • unforeseen events;
  • unavoidable absence;
  • natural disasters;
  • substantial financial hardships; or
  • death in the family, etc.

The burden of proof typically resides with the taxpayer to prove reasonable cause existed to create the tax failures, though it is common for the IRS not to request substantiation of the reasonable cause identified by the taxpayer.

If penalties are abated, they are removed retroactively, as if they were never assessed. This means that any interest that resulted from the existence of the penalties can also be retroactively removed. Penalty abatement can often result in very large savings if significant failures existed in old tax liabilities.

If you believe that you may have reasonable explanations to excuse penalties and interest on penalties that are included in your tax liabilities, then contact our office to get an application for penalty abatement underway.

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