How to Reduce IRS Tax Penalties
It's a common joke: there are only two things you can't escape in this life--death and taxes. Since its inception in 1952, the Internal Revenue Service (IRS) has cast a daunting shadow of fear over taxpayers, many of whom have felt the brutal sting of penalties from the IRS due to missed filings or non-payment of income taxes. If you find yourself under scrutiny from the IRS, or worse, owing hundreds or thousands of dollars in penalties, don't loose hope. There are options available to you.
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Things You'll Need
- IRS Publication 1546, The Taxpayer Advocate Service of the IRS
- IRS Publication 5, Your Appeal Rights and How To Prepare A Protest If You Don't Agree
- Publication 556, Examination of Returns, Appeal Rights and Claims for Refund
- IRS Form 656, Offer in Compromise
- Copies of all your bills from the past three months
- Copies of your last three paychecks
Instructions
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Seek professional advice. If your case is complex or severe, it might be wise to first consult with an attorney who specializes in tax issues before contacting the IRS.
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Contact the Taxpayer Advocate Service in your state. According to the IRS website, this service is an independent organization within the IRS that can assist taxpayers in reducing tax penalties. You can locate your local Taxpayer Advocate office online at IRS.gov or by calling (800) 829-3676.
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Contact your Appeals officer by phone or letter. Set up an in-person appointment to argue your case, and be prepared with records and documentation to support your position. If an in-person appointment isn't possible, write a detailed letter explaining the reason you are requesting an appeal and attach copies of any supporting documents. Supporting documents can be proof the tax was properly paid, proof of unemployment, or copies of excessive medical bills.
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Submit a compromise. If you feel you can prove economic hardship, but still accept the penalties you owe as correct, you might want to file an Offer in Compromise, which is a proposed contract suggesting a reduced penalty based on your income.
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Download Form 656 from the IRS Web site. Along with this form, you must provide proof of your income and expenses for the previous three months as well as a statement of why you feel you cannot pay the penalties. You must pay a $150 application fee for the IRS to consider an Offer in Compromise, along with an initial payment of 20 percent of the reduced penalty amount you are proposing. Be warned: the IRS doesn't always accept Offers in Compromises, but if it does, you can drastically reduce the amount you have to pay in penalties.
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Tips & Warnings
Need access to any of the IRS Forms listed above? You can download them at the Internal Revenue Service official Web site: www.irs.gov.
Don't ignore the IRS. Chances are, the IRS will contact you numerous times during your appeals process seeking additional documentation. If you fail to meet any of the deadlines as instructed, your appeal will most likely be denied.
