Many of the penalties that IRS asserts on individual taxpayers and small businesses can be avoided with the right strategic response. Some or the penalty waiver procedures are straightforward, while some are not. Yet the strategies are not always apparent and sometimes even seasoned tax professionals are surprised by the favorable results.
Tax penalties that can commonly be avoided include late filing, underpayment, underwithholding, early withdrawal, retirement plan penalties and ACA penalties. I’ve never had success in avoiding an interest payment assessed by IRS.
The primary things that will kill a penalty appeal is evidence or finding that the taxpayer lacks required documentation or made an intentional misstatement. If I’m handling a penalty appeal and find one of these situations, I usually advise the taxpayer to stop fighting. It probably won’t be worth our time.
What makes many unusual penalty tax waiver requests successful is the underlying fact is that IRS is driven by a combination of automated computer actions and human input. Navigating the system takes time, persistence, persuasion skills, and often a bit of luck.
Don’t expect miracles. If you can reduce or eliminate a large part of the penalty, consider it a success.
I would advice anyone facing a significant IRS tax penalty to challenge it. In most cases if personal contact with IRS is anticipated then it makes sense to have third party advocate handle the discussion with revenu agents. I notice and hear from others that IRS agents do respond more favorably to courteous CPAs than they might under other circumstances.