Penalties and Interest
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PART III: Penalties and Interest (Problems 6-10)Each year, the IRS issues well over thirty million penalties against individuals and businesses. Revenue from these assessments is often in excess of $15 billion. As a result, this is one of the largest sources of continuing frustration for citizens. Every year, the Taxpayer Advocate's Annual Report to Congress places penalties high on the list of the twenty most serious problems faced by citizens. A survey by the IRS of tax professionals shows that professionals consider penalties to be the fifth most serious problem faced by citizens. Fortunately, there is a simple and highly effective method of dealing with penalties. Unfortunately, the IRS does not often tell the truth about the procedure. To make matters worse, interest on a tax bill often doubles, triples--even more--the debt. And this is one area where the IRS flat lies about one's right to deal with the problem. IRS publications declare that interest is always added and can never be canceled from a delinquent debt. While that is true in many cases, it is not a universal rule. There are several circumstances under which interest is legally subject to cancellation and like penalties, the procedure is quite simple.
You have to pay additional money in the form of the penalty and the interest on the penalty.
To make a request for cancellation of penalties, simply respond in writing to the IRS service center that issued the notice. Address your letter to the Penalty Abatement Coordinator and clearly identify it as a "penalty Abatement Request." Then, in great detail, give the facts and circumstances of the case. Take care to set forth details allowing the reader to conclude that you acted in good faith and based upon a reasonable cause for your actions, and not out of a deliberate attempt to cheat. Be clear not vague. Give dates and names where appropriate. To the extent possible, provide copies (not originals) of documents you rely upon to support your claim. For example, if you claim that an auto accident prevented the filing of your tax return on time, provide all the details of the accident, including hospital and physician reports, insurance claims, medical bills, etc., to buttress your request. Always send your correspondence to the IRS using certified mail with return receipt requested. My book, The IRS Problem Solver Book, contains a chapter on the penalty cancellation process. In great detail, I walk you through the process of canceling the most common penalties, including the failure to file and failure to pay penalties which, combined, are assessed more than 15.5 million times annually. The book also walks you through the process of appealing an adverse decision on your penalty abatement request. In addition, our Penalty Special Report provides excerpts from dozens of pages of IRS manual on the penalty cancellation process. It gives you the acceptable reasons, right from the horse's mouth, why penalties are canceled. 29 Common Problems | Solution Packages | Top of Page PROBLEM 7: THE IRS ADDED PENALTIES TO MY PREVIOUS BILL.CONSEQUENCE:
SOLUTION:
If you have equity in a home or other real estate and can pay the tax using that equity, canceling the penalties can be your ticket out of tax trouble. They key is to make your application for penalty cancellation prior to paying the penalties. Once the IRS cancels the penalties, use the equity in your home to pay the remaining balance of tax. 29 Common Problems | Solution Packages | Top of Page The trauma of a tax audit is exacerbated by the fact that penalties are added to the bill. SOLUTION:Appeal the penalty assessment. The Trust Fund Recovery Penalty is used to collect unpaid business employment taxes from the owners or managers of a failed corporation. The law allows the IRS to assess the penalty against the company's "responsible officers," those who should have paid the tax but did not. However, in many cases, the IRS uses the shotgun approach, assessing the penalty against any corporate employee who had a hand in the company's finances, whether or not they are legally considered "responsible officers." A responsible officer is the person within the company with the ultimate authority to dispose of company assets. He is the person (or persons) making the decisions as to which creditors get paid and which do not. If you do not have such authority, you cannot be the responsible officer, whether or not you may have signed company checks.
29 Common Problems | Solution Packages | Top of Page Ask for cancellation of the interest. The IRS flatly denies that interest is subject to cancellation, but the law provides three clear situations in which it may be canceled. The first is where the interest is attributable to IRS delay that occurs while processing the case. The second is where the interest is attributable to an IRS error. And the third is where the interest is attributable to an erroneous refund issued by the IRS but which you in no way caused. |
