If you have a tax debt, you are aware that your bill keeps increasing because of the added penalties and accrued interest. If you could not afford to pay your original tax bill, why would the IRS think you would be able to now with these additions? Remember that the IRS computer system automatically adds the penalties to your tax bill. This means that the IRS does not take into account your personal circumstances. There are options to help you with this IRS Problem.

Reasonable Cause

The IRS can eliminate or reduce your penalties if you can show reasonable cause. What is reasonable cause? The IRS’s definition is "Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations." What does that mean?

In a nutshell, what this means is that you tried to pay your taxes on time but something got in your way. To prove this to the IRS you must use both logic and legal arguments.

Here is a list of some of the events that the IRS considers reasonable cause:

1. Ignorance of the law

2. Error or mistake was made

3. Forgetfulness

4. Serious illness, death, or unavoidable absence

5. Inability to obtain records

6. Incorrect advice from tax professional

7. Incorrect advice from the IRS

8. Fire, casualty, natural disaster, other disturbance

9. Acts of God

The IRS will actually accept any reason as long as it shows that you exercised ordinary business care and prudence and was still unable to comply with your tax obligations.

Requesting a Penalty Abatement

When you receive a tax bill that includes penalties, write back immediately and ask for an abatement. You can either write your own letter or use IRS Form 843 (Claim for Refund and Request for Abatement). Make sure you include a copy of your IRS notice showing the penalty and documentation that substantiates your reasonable cause. If possible, include payment of the tax bill which includes a note indicating that the payment is to go toward the tax portion and not the penalty or interest. Also, note this on the check itself. (If you pay the tax, the interest will stop accruing.) Make multiple copies of the letter and enclosures for your records as subsequent billings may be received before you receive a response regarding your abatement request.

For your information: If your penalty abatement is denied you cannot make another request on the same grounds.