One of the most overwhelming and frustrating aspects of any tax debt is the enormous amount that is added to your principal tax debt in penalties. These can be added for various reasons and at various times during the life of your case As a policy, the IRS enforces penalties to encourage “voluntary compliance” by supporting the standards of behavior required by the Internal Revenue Code. This consists of preparing an accurate return, filing it timely, and paying any tax due by the date required for most taxpayers whether it be an individual income tax or payroll tax. Efforts made to fulfill these obligations constitute compliant behavior. Most penalties apply to behavior that fails to meet any or all of these obligations.
In order to have penalties abated or eliminated, you must show what is termed “Reasonable Cause” for your failure to fulfill your taxpayer obligations. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. The term “reasonable cause” is quite vague, and the Internal Revenue Code provides some guidance, but over time the term has been interpreted by the courts and expanded upon in various published rulings.
As a basic summary, “reasonable cause” relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but still failed to comply with those obligations. The guidance provided by the Internal Revenue Code provides a number of factors that will be considered when an application for abatement, removal or refund of penalties is received; however, the application should also take into consideration the various court opinions that expand on what should be considered as “reasonable cause”. Many of our clients have found that by working with our firm, they will have a greater chance of success when all the facts are clearly presented and applied to both the Internal Revenue Code and the expanded court opinions that flesh out the vague guidelines for allowing for that abatement, removal or refund of penalties.
If you find yourself in a position where the penalties assessed against your currently owed or paid tax liability seem insurmountable, please contact Capstone Tax Consulting to discuss your options and the best way to approach the issue. One of our experts will take the time to review the specific facts in your case and let you know the merits of your presentation.