Reducing IRS Penalties

Each year the IRS assesses millions of penalties against taxpayers. Most taxpayers are unaware that post-assessment the IRS also abates many of those same penalties. During fiscal year 2012 the IRS assessed 37 million penalties against taxpayers. The IRS later abated about 5 million of those penalties. Most of those abatements occurred because taxpayers or their representatives contested the penalties. It is important for those subject to IRS penalties to know their rights to dispute a penalty assessed by the IRS.

The IRS Penalty Handbook is available to taxpayers on the IRS website at: http://www.irs.gov/irm/part20/. The Penalty Handbook describes the various penalties that may be assessed against taxpayers. There are over 100 potential penalties that might be asserted against a taxpayer. The majority of the penalties however: fall into two categories: collection penalties and accuracy related penalties.

 The most common collection related penalties are:

 Late filing up to 25% of the unpaid taxes of the return Late payment up to 25% of the unpaid taxes Late federal tax deposits up to 15% of late deposits

The most common accuracy with related penalties are:

 Negligence penalty up to 20% of the understated taxes Substantial understatement penalty up to 20% of the understated taxes  

For taxpayer subject to IRS penalties the handbook provides a listing of the IRS's favorite reasons for reducing penalties. In considering non-assertion or abatement of penalties the IRS applies a standard of "Reasonable Cause". Most people are unaware that the IRS will consider the following as reasons it might reduce a penalty: