What is tax abatement? Scroll down to know more on how it can be helpful for possible tax errors.
Tax Abatement and How to Claim for It
1. Tax Penalty Abatement
Tax abatement is a kind of relief the IRS grants to taxpayers who exert effort to comply with the law but are unable to fulfill their tax obligations because of uncontrollable events. The IRS grants abatement, or tax relief, only to taxpayers who have proven reasonable causes behind a penalty, despite tax trouble.
2. Reasonable Causes for Tax Penalty Abatement
A reasonable cause may be any legitimate or IRS-approved reason that hindered you from filing taxes on time. The assessment for a reasonable cause may only be solely based on sound facts and circumstances. Common examples of what a reasonable cause may be are the following:
- Death of a loved one
- Natural disasters
- Unavoidable absences (e.g. being in prison or in a rehabilitation center)
- Incorrect tax advice from a tax professional
The IRS agents may also ask further questions to validate your reasons, to assess if you can rightfully receive an abatement.
3. Types of Abatements the IRS Can Grant
There are more than 150 different type of penalties the IRS can impose. The two most common abatements granted are the penalties for late filing and late payment.
The IRS usually grants abatements for late filing and payment for two main reasons – reasonable cause, as previously mentioned, and first-time abatement. Taxpayers who have a clean payment record for the past 3 years are eligible for the first-time abatement.
4. Tax Penalty Abatement Requests
There are 3 common options as to how you can request and file for an abatement.
- Requesting via a telephone call
- Writing a petition letter
- Sending Form 843, or the Claim for Refund and Request for Abatement Form
A rule of thumb is if your tax penalties are less than $500, you may just opt to call the IRS. An IRS agent may either give you a certain answer quickly or ask you to file for abatement through a written petition or Form 843.
On the other hand, taxpayers who file for the first-time abatement usually get an instant decision. If the IRS agrees to grant the abatement, the tax penalties may be automatically removed. The taxpayer will also receive a formal letter in two to three weeks’ time.
5. Filing Tax Abatement Through Verbal Request
You can reach the IRS through their toll-free number. Bear in mind that IRS agents receive a high volume of calls, especially during peak season, so you have to be concise in explaining your claims. Also, if you have a tax practitioner, he or she can reach the IRS Practitioner Priority Service (PPS) hotline.
Before you make the call, prepare your valid IDs and documents. The IRS agent may ask for the following documents:
- Social Security number (SSN) and Individual Taxpayer Identification Number (ITIN)
- Information about your prior year tax return
- Details about the tax return you are consulting about
- Other notices and letters from IRS
6. Filing for Tax Abatement Through Written Request
If you are filing for abatement through a written request instead, here are some guidelines:
- Keep it short and straight to the point.
- Properly seal your documents and mail your request via Certified Mail only to the address found in your IRS assessment letter.
- Send only the photocopies of your documents, not the actual original copies.
7. Filing for Tax Abatement Through IRS Form 843
Another alternative is through Form 843. Here are some tips to keep in mind:
• Make sure to attach all possible supporting documents.
• Double check the mailing address, to make sure that you are sending your documents correctly. The IRS should respond to you within 60 days.
• You can opt to submit only photocopies of your documents. Keep the original copies just in case a document gets misplaced in transit.
8. Documents Needed for Filing
There are a lot of documents you can attach to your form to support your appeal. To establish reasonable evidence, you can bring the following:
- Legitimate medical records
- Legal and other court records
- Documentation of a natural disaster
- Additional certifications of insurance claims
- Other supporting documents
9. What to Do If Your Abatement Request Is Denied
If your request for tax abatement is not approved, you will receive IRS Letter 854C. When this happens, you can file for an appeal within 60 days. Filing for an appeal may take up to 9 months to process.
You may also request for a hearing on Collection Due Process, to settle tax penalties. Filing for a hearing may take around 2 to 4 months.
Filing for tax penalty abatement may be tedious. But, nothing is hopeless. Set aside time to learn more about tax penalties to avoid future mistakes. You may also consult with a local tax professional to help with your concerns.
Have you ever tried claiming for tax abatement? Share your experiences below!