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How do I challenge tax penalties from the IRS?

On Behalf of | Jan 18, 2023 | Tax Collection

The Internal Revenue Service (IRS) can charge taxpayers penalties for certain violations. Common reasons for penalty charges can include a failure to file taxes on time, a failure to pay owed taxes, inaccurate preparation of the tax return and a failure to pay in full.

What if I disagree with the penalty?

Taxpayers can fight back. One option is to argue the assessment is not warranted because you acted in good faith and can show reasonable cause. It is important to use these two key terms: reasonable cause and good faith.

Although these terms may seem easily defined, legal experts note that an attempt to move forward using a typical household dictionary interpretation of these terms will not go well. These are terms of art with specific definitions that can vary depending on the tax code section at issue.

How does this process work?

An attempt to challenge an IRS issued penalty will result in a review of the taxpayer’s efforts to report their tax liability. The courts will make their determination after reviewing the facts and circumstances of the case. Factors the taxpayer can use to support their argument based on three of the most common code issues include:

  • Failure to file. If the penalty is connected to allegations you failed to file your taxes, the presence of a fire, natural disaster, civil disturbance, death in your immediate family, system issue that impacted the electronic filing of the forms, or inability to access records that impeded the ability to file can support an argument that the IRS should reduce or drop the penalty.
  • Inaccurate returns. Penalty relief in these situations is possible if you can establish that you made appropriate efforts to report the tax due and that the tax at issue is a complex matter. Your own education and experience can also play a role in this example.
  • Inaccurate or late information returns or payee statements. The IRS may reduce the penalty if you can show you acted responsibly. Examples include requesting an extension and submitting corrections within a relatively short period of time. Certain mitigating factors can also help. Examples of such factors the IRS has approved in the past include the inability to access relevant business records, actions of another person or the IRS that impeded the ability to move forward, and a pattern of compliance in the past.

It is important to note that taxpayers generally bear the burden of proof. They must establish that they are right, and the IRS is wrong. If they cannot, the court will likely side with the IRS.

Taxpayers do not need to meet this burden on their own. The attorneys at Goldburd McCone are experienced in this and other options for tax penalty abatement or elimination and can tailor a plan to your situation.