Accountants being able to help a client get out of tax penalties from the IRS are invaluable assets able to create customers for life and generate more business over time through word of mouth.
Knowing how to navigate through the rules for a reduction or elimination of tax penalties is key to taking those fines off of clients’ shoulders.. There are nine factors that can get tax penalties reduced for individuals:
- Death in the family – If an individual has had a death or serious illness in his or her immediate family, the IRS may waive tax penalties. The individual will need to show that other financial obligations were also affected. Written proof is required of the death or illness.
- Residential damage – Did the taxpayer’s residence sustain damage due to fire or natural disaster? How quickly did the individual comply with tax requirements after the damage occurred?
- Documents missing – If vital records were not able to be obtained, the taxpayer needs to explain why and the effort made to obtain those documents. Could the individual have estimated the information? If not, he needs to explain why not. The taxpayer also needs to note how quickly compliance occurred once the vital document was obtained.
- Error in his ways – If the penalty is due to the taxpayer’s error, the individual needs to explain what information was wrong and what he did once the error was discovered. If the mistake occurred through the actions of another individual, the taxpayer needs to explain his relationship with that person.
- Bad advice – If the taxpayer relied on the advice of an individual because of the tax issue being technical in nature, that is a factor the IRS will consider. Was this an issue that the average taxpayer would be expected to know? Was the individual unable to access his records because someone else had them?
- IRS off base – If the individual relied on information from the IRS that turned out to be wrong and delayed the filing of documents, the agency could provide a pass on penalties. Does the taxpayer have a history of tax compliance before this issue? If the IRS advice was verbal, a description of the circumstances surrounding the conversation is important. It is also vital to note the name and badge number of the IRS employee who provided the information.
- Not knowing laws – If it can be showed the taxpayer made a good faith effort to follow the tax laws and simply didn’t know the law he violated, penalty dispensation may be granted. Factors to consider are was the employee subjected to the tax previously and was the penalty imposed on the taxpayer previously.
- Prudence – Did the individual exercise ordinary business care and prudence but was still unable to meet the tax law requirement.? Was there anything else that occurred to cause the taxpayer to put off the tax requirement? Was there a big gap between the event and the individual’s tax compliance? If there was, that dilutes an appeal to eliminate tax penalties. Also, if there are tax issues in previous years as well, that shows a lack of business care and prudence.
- Financial hardship – Is there a solid financial reason why the individual did not submit a tax payment when required? Financial records, such as bank statements and bills, will need to be submitted as evidence. Are there discretionary expenditures, such as vacations and cars that could hurt the financial hardship argument? If the individual filed for bankruptcy prior to the tax being due, the IRS may look more favorably on hardship pleas.
Sansone Accounting & Tax is a provider of accounting and QuickBooks services and keeps an eye on taxation issues for clients. Sansone is known for guiding clients through planning and preparation decisions to minimize tax liabilities and help increase business efficiency. Whether it is QuickBooks or new business taxes, the firm prides itself on being available to play a major role in supporting financial, record-keeping and tax-planning issues. To schedule an appointment with one of Sansone’s certified public accountants, call (815) 459-4300