If your client is assessed a failure-to-pay penalty, they may be eligible for abatement if they meet these requirements.
1 min read
For the 2017 fiscal year, the IRS assessed 38.8 million civil penalties, amounting to $26.5 billion. Of those penalties, 4.3 million were abated. The most common reason for civil penalties assessed last year was failure to pay individual and estate and trust income taxes. On a related note, more than 400,000 notices of federal tax liens and almost 600,000 notices of levy were filed in 2017.
If your client is assessed a failure-to-pay penalty, it’s best that they deal with it as quickly as possible before their tax debt gets out of hand. You may be able to help them abate it if they meet the eligibility requirements. Here’s a quick look at what you need to know to help clients who have been assessed the penalty.
Keep in mind, the failure-to-pay penalty is one-half of one percent (.5%) of the unpaid balance, added every month or partial month the payment is late. That penalty will continue to grow until it either reaches the maximum 25%, or the balance is paid in full.
The 3 reasons the IRS would abate your client’s failure-to-pay penalty are:
IRS Error
To be granted penalty abatement for IRS error, you must prove that your client received written tax advice from the IRS (that your client reasonably relied on) that led to the discrepancy in question. This argument is not often successful.
If you are requesting this type of penalty relief, you likely need to provide your client’s written request for advice, the incorrect written advice your client received from the IRS, and the report identifying the penalty and related error.
Reasonable Cause
If the IRS approves the abatement of your client’s penalty due to reasonable cause, it means that in your client’s unique situation, the IRS found that your client would have paid their taxes owed if they had been able to do so. Circumstances such as a fire, natural disaster, serious illness, death, etc. (if established) count as valid reasons for why your client did not pay their taxes. Not having enough money to pay taxes does not, in and of itself, count for reasonable cause.
Note: If your client doesn’t have enough money to pay the tax debt owed, you should check into another method of tax resolution instead. An installment agreement or offer in compromise may be better for them.
Administrative Waiver
The IRS provides administrative penalty relief under certain circumstances, and first-time penalty abatement (FTA) is the most accessible administrative waiver. Your client may qualify for FTA if they meet the following:
Your client may also qualify if they were not previously required to file a tax return.
Now that you’ve reviewed eligibility, you can check out this blog post to learn how to request penalty abatement for your client.
Explore more of our recent Articles, User Stories, and Ebooks.
4 min read
18 min read
Canopy takes the headaches out of client management by offering a way to keep client info organized.
I love how easy it is to setup a new client in this software. Once set up, it's one click to get IRS transcripts downloaded for my review. This saves me at least an hour each week in comparison to the software I used to use.
This makes workflow for tax resolution manageable. This business is a bunch of hurry up and wait. This system helps to refresh my memory while transitioning to different clients.
The ability to securely share documents with clients as well as complete POAs from client contact data already in Canopy. The ability to route workflow between team members with color coded statuses allows us to work efficiently.
Cool features, outstanding customer service, constantly updating to make it better. I love that I can upload files easily to a secure client portal and we don't have to email files anymore. Absolutely can't imagine not having this software.
It's safe and secure. Clients are able to upload documents and the documents are saved their portal which as a result, keeps us better organized. The task feature keeps us organized and we know exactly the status of each client.
Submit this form, and we will be in touch soon to give you a custom demo.
Set a time for one of our product specialists to give you a guided tour practice.
Leave a comment!