How I Got the IRS to Remove Fines and Penalties

The Internal Revenue Service is serious about collecting money and you can't avoid them. Especially with electronic banking and your entire financial history available on your credit file, if you owe them money, they will find you.

But I have found they are also understanding if you make a mistake or rely on bad advice. We recently relied on some bad advice from a tax preparer and were hit with some penalties for filing some corporate forms late. We spoke with IRS, followed their procedures to appeal the penalties, and the IRS reversed all the penalties they had originally assessed.I have also found the IRS customer service people, especially the secondary specialists you are usually transferred to, very helpful.

When filing a corporate return for one of our businesses, we recently relied on some bad advice from a tax preparer and were hit with some large penalties for filing some corporate forms late. The forms were filed late because we were told by the preparer to initially file the income a different way. We discovered he was wrong, and re-filed the correct forms as soon as we realized the problem. We acted in good faith, never with any intent to avoid taxes. As soon as we realized the error, we corrected it.

The penalties were substantial and after discussing the situation in detail with one of the IRS's corporate tax customer service people, she suggested we request an "abatement of the penalties", where the IRS reviews the situation and may remove fines. This is also sometimes done if your penalties were caused by your involvement in a natural disaster, personal or family health crisis or other extreme circumstances.

Now if you owe taxes, they will not lower or remove any taxes due. This only relates to any penalties they may have imposed on you. The term the IRS uses is "abatement of penalties". Not all penalties and fines will be removed, but if you acted in good faith, and relied on the advice of a tax professional or the IRS themselves, you may have a good chance of having them removed. They may also remove any interest charged on the fines or penalties. This is also different than an "offer and compromise" which is when they reduce your tax owed due to economic hardship.

Here is what I did to help remove IRS fines or penalties:

Call immediately
If you get a notice from the IRS, don't wait, call the number immediately and address the problem. Be sure to note the date and time you call, as well as the name and ID number of the person at the IRS you speak with.

You will also find the IRS is much more flexible when you call and deal with an issue immediately. In many cases they can give a 90-day extension immediately, allowing time to write a letter or research the situation. It's only when you let things go or fail to meet promises or deadlines that they become more stringent.

Put it in writing
Never rely on phone calls. If you've discussed something with an IRS representative, be sure to follow up with a letter. Although they do accept faxes, I also suggest sending all correspondence via USPS certified mail, return receipt requested. That way you have proof of mailing at a certain date.

You can appeal
Even if the IRS does not grant your request to remove fines or penalties, you do have a right to appeal the decision. The IRS will send a letter informing you of the decision, if the penalties are not removed, the letter will have instructions on the appeal process.

File on time
Many penalties are for late filing, and these can be avoided by filing for an extension. Check on deadlines and be sure to file everything on time. I learned from this experience and now we are always early or on-time with all filings.

Sources:
IRS website
IRS "Your Rights as a Taypayer" IRS publication

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