Reasons to Have IRS Penalties Waived
Most taxpayers who are late in filing a tax return or paying their taxes face penalty charges and interest. Such penalties can be overturned if the IRS is at fault and directly responsible for the delay. For all other reasons, the IRS can overturn penalties at its discretion, taking a case-by-case approach.
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Residence
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Members of the armed forces might qualify for an extension to the ordinary filing and payment deadlines if their service is in a combat zone. U.S. citizens and resident aliens who are abroad at the time their tax return and payment are due usually qualify for a two-month extension on payment and a six-month extension on filing, with a further two month extension on filing at the discretion of the IRS.
Penalties
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People who miss their deadline, taking account of any extension, can be penalized in three ways. Firstly, late filing earns a penalty of 5 percent of the tax owed for each full or part month's delay. After 60 days, a minimum penalty of $100 or the total tax owed, whichever is smaller, is assessed. Secondly, late payment earns a penalty of 0.5 percent of the tax owed for each month or part month's delay up to a maximum 25 percent. Finally, all late payments accrue interest at 3 percent above the federal short-term rate.
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IRS Fault
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Two situations, if accepted as correct, will automatically get penalties overturned, known formally as abatement. First is if the IRS provides written advice to the taxpayer that proves incorrect, and second is if IRS mistakes or delays have led to an interest charge.
Other Reason
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Beyond these reasons, any other abatement is at the discretion of the IRS. There are no hard and fast rules about this, but the two main principles are that the taxpayer has "reasonable cause" for the delay and that it was not caused by "willful neglect."
According to the IRS, "Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but nevertheless failed to comply with those obligations." Examples could include making a genuine mistake on the return and thus underpaying tax, or being unable to complete the return through uncontrollable circumstances such as a house fire.
The taxpayer must provide a written explanation for the delay. Generally only the penalty charges can be abated in this way and the taxpayer must still pay any interest that has accrued.
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