We've had tremendous success recently with respect to our penalty abatement cases. First, we currently have about 25 cases relating to the National Audit Defense Network/Oryan Management Mall for All - Americans with Disabilities Act tax credit fraud.

In most of these cases, our clients have filed a petition with the United States Tax Court. The cases are then sent to IRS Appeals offices around the country depending upon where the client lives. In each and every case (without exception, so far) the penalties have been reduced from as much by as much as 75%. In some cases, the penalties have been reduced by 50%. This normally represents a savings of several thousand dollars per taxpayer.

Second, we just handled a very difficult penalty appeal and got over $50,000 in late filing penalties abated. The client had a gambling addiction and our position was a very tough sell. However, by making a personal appearance along with the client, we were able to prove to the IRS that abatement was the right decision. Since the client had already paid the penalties in question, he will end up with refund checks for more than $55,000 including interest!

If you owe the IRS for unpaid taxes, you already know that the penalties are quite severe and often exceed the actual tax due. But, the big question is, what can you do about them? First, let's understand how penalties are assessed. As much as you may wish to blame the IRS, penalties are there because Congress writes a bill and the President signs it into law. Second, almost all penalties are assessed automatically by the IRS computer system. It is only on audit cases that certain penalties are determined by an individual. Third, some penalties are erroneously assessed, but the majority are correct.

If the penalties assessed against you are correct, can you still get them abated? Yes, if you meet the IRS criteria for reasonable cause. What constitutes reasonable cause to me and you may not seem reasonable to the IRS. Some tax firms advertise that they will get all the penalties (and interest) abated. Don't believe it. Anyone that can tell you what will happened without knowing all the details of your case is probably a con artist whose job is primarily to separate you from your money.

In fact, I have had excellent success with penalty abatements, but largely because I don't do very many of them. Each IRS office is very different in their approach to penalty abatement. Some don't dismiss any of them no matter how good your reasons may be. Others are far more lenient and have even surprised me with their decisions. The question you want answered is "what does the IRS consider to be reasonable cause?"

It's much easier to give you examples than a simple answer. One case recently involved a business that filed a corporate income tax return late. They paid the tax in full when the filed the return, but they incurred a $10,000 late filing penalty. After reviewing their records, I discovered that they had never filed late and never owed any income tax. Even though they clearly filed the return late, the IRS agreed to abate the entire penalty because of their excellent history.

My first successful penalty appeal involved a client with serious mental problems. She failed to deposit payroll tax money even though the money was sitting in the bank account. Through an exhaustive review of her medical records (provided to me by the client), I found that her medications made it nearly impossible to function. Though it took a great deal of effort, we were able to get $25,000 in penalties wiped out.

I will only take a penalty abatement case if it has real merit. To do otherwise, is a ripoff of you, the client. Be very careful before you pay anyone to handle a penalty appeal and be certain the tax pro has experience and a complete history of your problem before you give them a penny.

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Last updated 10/29/2012 11:05:48 AM

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eTaxes.com specializes in Personal & Business IRS Tax Negotiation, IRS Offers In Compromise or "OIC", IRS Installment Agreements, as well as IRS Delinquent Tax, IRS Bankruptcy & IRS Collections Issues, IRS Payroll Taxes, IRS Tax Liens, IRS Wage Levy Release, IRS Bank Levies & IRS Seizures.