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How to Deal with Penalties from Tax Non-Payment

Updated for Tax Year 2017


OVERVIEW

If you don't pay your taxes when they're due, the debt doesn't go away. It may even grow as it accumulates interest and penalties each month it remains unpaid. The IRS will continue to attempt collection of the tax you owe, but it may be willing to waive or reduce the penalty charges if you can show you have a good reason.


Step 1: Look into abatement

Check whether your circumstances could entitle you to abatement. The IRS can consider waiving the penalties if your reasons for not paying on time are due to circumstances outside your control, such as a death in the family, illness, imprisonment, a hurricane or the destruction of your records. However, if your only reason for not paying is that you don't have sufficient funds, the IRS will not waive penalties because they hold you responsible for setting money aside for taxes. However, they may consider waiving penalties if you have been unemployed.

Step 2: Gather your proof

Find proof of your claims to present to the IRS. If you live in a federally-declared disaster area for which the IRS is offering residents penalty waivers, then gather some proof that you are in fact a resident of the area. If your reason for not paying is because you spent time in the hospital, then your medical bills or reports that can confirm the dates are helpful. Without any type of proof, the IRS is unlikely to consider waiving or reducing your penalties.

Step 3: Make your waiver request

Write a letter to the IRS requesting a penalty waiver. State the reason you weren't able to pay, and provide copies—never the originals—of the documents you're offering as evidence. You should mail the letter to the same IRS address that notifies you about your penalty charges. If you prefer, you can also speak with an IRS representative over the phone.

Step 4: If at first you don't succeed, try again

Appeal if the IRS refuses your request. The IRS will usually respond within 60 days of receiving your request. If you are unsatisfied with its response, you can always write back with more information requesting it reconsider. If your second letter still does not resolve the issue, you have the right to appeal the IRS decision to impose penalties. This allows you to meet with an impartial appeals officer who will reconsider all of your facts and circumstances.

Tips

  • If you run a small business and the employee responsible for filing your tax returns and making payments quits, this may be a valid reason to obtain a penalty waiver if it's close to the payment deadline.
  • In some cases, relying on an accountant's advice that was wrong may be sufficient for the IRS to eliminate your penalties.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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