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Penalty Abatement

Anyone who has ever owed money to the IRS can confirm it's a difficult type of debt to pay-off in full. This is due to the fact that interest and other penalties are added to an individual's original tax debt. In fact, there are times when the amount of interest and penalties makes it very difficult to pay off the original debt. That's why tax experts recommend paying off tax debts as quickly as possible because the IRS has a variety of very unpleasant collection techniques at their disposal. These techniques include wage garnishment, seizure and freezing of bank accounts, property liens, and in some cases, the ability to seize real and personal property.

How does a person manage to get into debt with the IRS? It usually happens when a person doesn't pay their taxes on time, fails to file their tax forms in a timely manner or doesn't make payments as agreed. This may seem rather obvious, but this situation can crop up for a variety of reasons that include job loss, natural disasters or a major illness. Penalties are also added when individuals who are on payment plans fail to meet their obligation.

During 2012, there were 38 million cases involving penalties levied against taxpayers that amounted to nearly $27 billion. It's important to understand that it's not just interest that's increasing a tax bill because the IRS also adds civil penalties and fines that can make the amount owed grow very quickly. It's a difficult situation for any taxpayer, and it may feel like it's impossible to ever escape from the endless loop of increasing debt.

So, what can be done to remedy the situation? Individuals with tax debt usually have a lot of questions and wonder if there's anyway to settle their IRS debt once and for all. Here is a list of some commonly asked questions about the process of penalty abatement and arranging a payment plan with the IRS

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What is penalty abatement?

In simple terms, this means the Internal Revenue Code allows for the removal of penalties associated with the late filing of taxes, the late payment of taxes or the late deposit of taxes. The fines aren't intended to create extra funds for the government, but rather to discourage people from not paying their taxes on time and in full. However, it's very important to understand that the IRS isn't required to remove interest, fines and
penalties.

Also, not everyone is granted penalty abatement. Here's a general list of the requirements with some brief explanations and examples.

1. In theory, penalty abatement is a one-time process, but the slate is clear tax-wise after a three year period, so the Clean Penalty Rule only applies to the prior three years of the taxpayer's history. An example of this would be a person with a tax payment issue in 2009 who asked for and received penalty abatement. Since five years have passed, this person would be allowed to ask again, and if his or her circumstances qualify, receive another penalty abatement for a more recent case.

2. Reasonable cause has to be shown for a penalty abatement to be issued. The IRS considers job loss, major illness and natural disasters as some of the possible reasonable causes for not filing or paying taxes.

3. There's a cap on the amount the IRS will abate, and this amount isn't published. This is a place where a tax resolution law firm may be helpful because they have experience working with the IRS and have an idea what will realistically be waived from a tax debt.

4. Penalty abatement is for a single tax period, so if for example, a person hasn't filed a tax form for 2011, 2012 and 2013 and has penalties for all those years, only one year is eligible for a penalty abatement request. In addition, the other years must be in compliance before filing a request for one of the years in question. The year the individual requests penalty abatement for is likely to be the one with the highest amount owed.

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A brief overview of the penalty abatement request process

The process begins when the taxpayer files an IRS Form 843, and the only requirement is the request be made in writing. It then goes to an IRS service center. Voluntarily stepping up and trying to settle the issue and acting responsibly to pay the debt will help the case. Be sure to include any supporting documents and carefully explain the issue that caused the taxes not to be paid on time. An appeals officer is assigned to each case, and it's his or her decision whether the situation warrants a penalty abatement or installment arrangement. This is a rare opportunity for an individual to actually put a human face on the issue, so explain the reasons behind not being able to pay in full and show the appeals officer a plan that will help resolve the situation.

However, it is important to understand the IRS generally uses The Reasonable Cause Assistant, which is an automated program that is designed to allegedly simplify the process of who is eligible for the penalty abatement process. However, some glitches in the software have caused controversy. A report has stated that in 2011, 55 percent of all the requests that went through the system were given an incorrect determination. Therefore, it's not terribly unusual for an individual to get a denial even if he or she really is eligible for a penalty abatement. This is also a point where a debt resolution law firm can be of assistance because appealing an automated denial can be difficult for an individual to handle.

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How do I qualify for an installment agreement?

So, once the deal is made to eliminate some or all of the penalties, what happens if it's still too much to pay in one lump sum? Generally speaking, if an individual owes less than $50,000, a payment plan can be applied for online. It will often be granted as long as all past due tax forms have been filed. All future federal tax refunds will be applied to the debt, and at least the minimum monthly payment must be made on-time each month. During the time of the payment plan, all other taxes must be filed and paid on-time.

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Why work with an attorney during an installment agreement?

Working with the IRS can be overwhelming and confusing for an individual. Our attorneys are experienced with tax issues, understand all the paperwork and are familiar with negotiating with the IRS. This firm doesn't assign clients to a paralegal or simply file forms with the IRS. Clients meet with an attorney who listens carefully to their situation and helps create a plan that will best serve their needs.

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Why work with our law firm?

Our attorneys will make an honest assessment of each individual situation and present a plan that is reasonable and doesn't create expectations that are unrealistic. An attorney can also quickly put an end to IRS collection activity while the case is being negotiated.

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