Under What Circumstances Will the IRS Cancel Penalties And Fees?

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Your IRS situation feels overwhelming enough as is, but what if you’re assessed penalties on top of already owed taxes? These fees can quickly cause your tax debt to spiral out of control. All hope is not lost, however. In many cases, the IRS is willing to cancel all or a portion of assessed penalties, as highlighted below:

Reasonable Cause

From natural disasters to incapacitation, a variety of circumstances may have prevented you from filing your return and paying your taxes on time. While the IRS may seem unforgiving, exceptions exist.

To qualify for penalty relief based on reasonable cause, you’ll need to provide extensive proof of the issues that prevented you from abiding by your tax obligations. Unfortunately, simply lacking the funds to pay your taxes does not qualify as reasonable cause.

Incorrect Advice From the IRS

The IRS offers a statutory exception for cases in which penalties are imposed in error. If you received problematic written advice from the IRS, you can request relief via Form 843.  

First Time Penalty Abatement

The IRS provides a First Time Penalty Abatement (FTA) policy for taxpayers with a strong record of filing and paying taxes on time. Criteria for this program includes:

  • A lack of ‘significant’ penalties on tax returns of the same kind within the past three years. Unfortunately, the IRS has been known to deem penalties as low as $1 significant.
  • FTA offerings are only available for penalties related to a failure to file, pay, or deposit. Estate and gift tax returns do not apply.
  • All current tax returns must be completed before filing — and if you already owe tax debt, you must be up to date on your payment plan.

It may be possible to avoid penalties and fees from the IRS, but cancelations can be difficult to secure. Improve your chances by working with the helpful team at the Highland Tax Group.