What is IRS One Time Forgiveness and When Can It Be Used?
Anyone who has found themselves or their business presented with a penalty after filing, can attest to the fact that it is not the best place to be financially. Tax debt can place a significant dent in finances, ruin your credit score, and even negatively affect your professional and personal relationships.
However, what most people are not aware of, is that there is an option to have their tax debt forgiven by the IRS - if they qualify.
Fresh Start Program
If you consult with your tax accountant, we can advise you and your CFO on how to receive IRS one-time forgiveness. If you do not qualify for this option, the IRS offers other methods for reducing or removing your tax penalties. These are under a program called Fresh Start, which includes:
Offer In Compromise (OIC) - You may qualify for this option if you are able to prove that paying the tax debt would cause financial hardship. Therefore, you would pay the IRS only a fraction of the penalty.
Currently Not-Collectible Status - If you can prove that you are unable to pay your tax debt, in full or in installments, this allows you a one- to two-year postponement on the IRS collecting your tax debt.
Installment Agreement - The IRS allows you to pay your penalty, including interest, in installments, the most common repayment period being 72 months.
First-Time Offenders
Taxpayers and business owners who are “first-time offenders” may request IRS one-time forgiveness in the following ways:
Penalty Abatement - This allows you to prove that you have a reasonable and legitimate reason for not paying your taxes on time or filing incorrectly. Your tax accountant will advise that you should not have had any penalties in the past three years.
Statutory Exception - This permits a reduction or removal of a tax penalty if it can be proven that the penalty occurred due to incorrect advice received from the IRS. The CFO of a company should ensure that all relevant documents and correspondences have been recorded in order to validate this claim.
Reasonable Cause - Your tax accountant may suggest, if you do not qualify for penalty abatement, that you request the IRS to completely waive your fees if you can prove reasonable cause. This would include, but is not limited to, death or incapacitation, fire or other natural disasters, or the inability to obtain your records.
How to Apply for One-Time Forgiveness
There are several methods of applying for IRS one-time forgiveness for tax penalties incurred. Most requests for penalty forgiveness are fairly simple and only involve completing a form.
Written Letter
You can apply for IRS one-time forgiveness via written letter. When constructing this petition, it must consist of information about your penalty and the circumstances revolving around it. Include any relevant documents and send the complete packet to the address provided on the notice that the IRS sent to you.
Verbally
Another method of appealing for penalty abatement on your taxes is doing so verbally. If you have successfully made contact with an IRS representative over the phone, you may find it simpler to make your request orally. You also have the option to go to a Tax Administration Center and speak with a representative there.
Form 843
In some cases, it may be best to complete the official form to apply for penalty forgiveness. This form, known as the IRS Form 843, Claim for Refund and Request for Abatement, can be filled out by you or your tax accountant. This form provides an area for you to explain why you qualify for penalty abatement. Use this area wisely.
Be Sure to Consider Interest
One important matter to note is interest. While you are applying for IRS one-time forgiveness, interest will continue to accrue on your tax debt. It may be beneficial to pay the debt to reduce the amount of interest that begins accruing from the date of your penalty notice. This is one option, as it will prevent your tax debt from growing immensely.
It is utterly vital that you provide accurate information to the IRS when requesting penalty abatement. Working along with your tax accountant to either write your request letter or complete the official form is always the most prudent choice.
Summary
If you find yourself facing a tax penalty from the IRS for the first time, either as a taxpayer or business owner, do not be disheartened. You may apply for penalty abatement or any of the other options found under the IRS one-time forgiveness program.