Penalties And Interest Chapter 12

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Penalties…

Removing penalties on your first late personal tax return form 1040 should be easy. It’s pretty much a given. After you pay the liability you can call and request a penalty removal. Just tell them that you forgot to file on time, or though that you did. Or you could fill out form 843 claim for a refund.  You have to write the form number in and select other on line 3b.  I would still try to prove reasonable cause and not willful negligence was the reason.

Use form 843 for any years of personal returns, or other returns, you want to claim a penalty abatement for.

Interest …

Interest is charged when there is a balance due. When a tax liability is reduced or abated, the corresponding interest will be too.  When a penalty is abated, the interest on that penalty must be abated too.  Interest can be abated if it can be shown that it is attributable in whole or in part to an unreasonable error or delay by an officer or employee of the IRS.  You have to prove…

  1. That the error or delay occurred in connection with ‘ a procedural or mechanical act’ or a ‘managerial act’ associated with the case.
  2. The error or delay occurred after the IRS contacted the taxpayer ‘in writing’ about the case.
  3. No significant aspect of the error or delay can be attributed to the taxpayer’s actions.

If you want to request relief of interest charged due to an error or delay I encourage you to do so.  I have never attempted to do this given the IRS posture in defending these claims.  It is hard for an honest practitioner to justify charging the fees necessary to defend this given the odds against it. You of course can try this on your own.  I would look further into how cases are settled and what the taxpayer advocate has to say about it.  A lot of research will be necessary.  You can always appeal a decision against you if the facts are in your favor.

The three ways to reduce your tax liability in general are:

  1. Pull your record of account and make sure the IRS has recorded your payments. Make sure if they removed any penalties they took off the related interest. Make sure you file original returns for any years that they filed a SFR (substitute for return). Make sure you file original reports for any payroll report, under code 6020b that the IRS filed.
  2. Amend any returns that you think are not correct.  Submit proof with the return and your copy of new return and the amended version.  Do not be afraid of an audit by doing this.  Submitting your documentation will prove your case, so they will see little chance in auditing you.
  3. Apply for penalty abatements according to the instructions in this book.
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