TAX PENALTIES VS. TAX ABATEMENTS

If you owe the IRS and you are paying attention, you know that the IRS bill keeps growing. It grows substantially faster than any other debt you’re likely to have, sometimes 20% to 25% a year.

People will often ask me if they can get their penalties thrown out or eliminated. The answer is, it is possible and, in some cases, it is very likely. It depends upon your circumstances.

The technical term is called “penalty abatement,” and you must apply to the IRS, and you must follow their procedures and so forth. In a nutshell, it depends upon whether or not you have a good story. What constitutes a good story is determined on a factual case-by-case basis. What I often tell people is you need to have a reason for why you fell behind on your taxes, and the reasons that are most likely to succeed are a financial hardship that is beyond your control or some type of a health issue.

The number of penalties assessed by the IRS over the last 17 years has steadily risen. However, the number of abatements has not increased proportionately. In fact, between 2009 and 2011, the number of penalty abatements declined by 4%.

To put this in perspective, between 2000 and 2011, the IRS assessed penalties starting out at about $30million a year and rising to $40 million a year. However, the penalty abatements have remained consistent at around $5 million per year.

Additional statistics of paying the IRS: Back in “the day,” people called the IRS or physically went to their IRS office much more frequently than they do today. Much of that is now being replaced with the internet. In 2012 over 80% of income tax filers submitted their return electronically. Another way of saying that is that the e-file rate was over 80%. Also, the number of visits to irs.gov in 2012 was over 372 million.