How easy is it to get the IRS to abate penalties and interest?

How easy is it to get penalties and interest abated?

That is a question that I am asked on a daily basis and there is an easy answer.  The answer is simply, ” if reasonable cause exists”.  The next question that comes from that, ” what is a reasonable cause”?
There is no magic wand to wave regarding penalty abatement. The IRS is very tough on abatement because once assessed the penalty becomes taxes that are owed. The IRS makes it very difficult to abate penalties and interest and unless documented very well, most of these cases end up in appeal and then denied. Even though I am not aware of statistics available, I would say, one out of every hundred are accepted, if that. As a general rule, almost all penalties seem to get a reject letter the first time around because they are not filled out with the documentation that the IRS requires. There is an art to filling out the abatement requests. Firms that know how to do this are invaluable .

So what is reasonable cause?

While by no means should this be all encompassing, there will be a couple of basic thoughts and trend patterns to follow when considering abatement of almost 150 plus penalties that IRS can hit you with. Also, it should be known that reasonable cause exists on a case by case basis.
The first principle of reasonable cause is determined and based on whether or not the taxpayer used and exercised ordinary business care and prudence to make payments and accounted for the filing of all and any tax returns timely. This ordinary business care is just that, ordinary, nothing more or nothing less.
The second principle is as simply as this sounds. Does the event make sense? You find incredible fabricated stories that seem as though they come from a sci-fi movie that you talk about in the break room at the IRS. You want to make sure a third party would understand and believe the explanation.

The third principle is very important and it is where most people make their mistake. It is the time line. Does the explanation fit the time line of events? The time line of the explanation must fit the period of time.

The fourth principle is the case documentation. Do you have substantiation for the event?  Do you have letters from third parties, accountants, witnesses, doctors in some cases or employees of the business. The IRS does not usually accept self serving letters written to excuse oneself. Having third party letters are a key to abatement. Sometimes having notarized statements adds to the credibility of the situation.

The fifth principle is the packaging of the case along with the IRS guideline that the reasonable cause follows.
While this is not a comprehensive list, it is a good start to penalty abatement.

Related posts:

1. Authority to Abate Penalties and Interest.
2. Can penalties for the non-filing of form 990 be abated?