How to deal with penalties from tax non-payment
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.
Key Takeaways
- You can look into penalty abatement if circumstances beyond your control, like a natural disaster or illness, caused your tax non-payment.
- Gather information such as medical records or disaster area residence verification as proof to support your penalty waiver request to the IRS.
- Respond to a penalty assessment by making a formal waiver request by writing to the IRS, explaining your situation, and including your supporting documents.
- If your initial waiver request is denied, you can appeal by providing additional information or clarification.
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.
TurboTax Tip:
Valid reasons for a penalty waiver include circumstances outside your control such as a death in the family, illness, imprisonment, a hurricane, or the destruction of your records. Additionally, if you have been unemployed, the IRS may consider waiving penalties. However, simply not having sufficient funds is not considered a valid reason for a penalty waiver.
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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