Extortion Plain and Simple: IRS penalties make things fair. After all, how fair is it to those who pay their taxes on time if the late filers don’t get punished? But unfortunately for you, penalties have mutated into being a way for the IRS to Extort Big Profits out of taxpayers! Penalty Interest not only routinely Doubles but also Triples a Tax Bill.
Know Your Rights: The IRS is successful at collecting penalty fees because so few people know they have the right to cancel the fees! The IRS addresses Penalty Cancellation in Publication 1 “Your Rights as a Taxpayer”:
– “The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee.”
“Good Faith” 101:You act in good faith when your actions were not intended to break the law. Even if they were wrong. This can include ignorance of the law, bad advice from the IRS, bad advice from a Certified Tax Professional (like an attorney), or proof that you just innocently made a mistake.
“Reasonable Cause” 101: Reasonable Cause is a your good reason for failing to act on your Tax
Debt. It is very important to notify the IRS of your Reasonable Cause A.S.A.P. Some common examples of Reasonable Cause are:
-Serious Medical Problems (Prolonged injury or illness)
-Natural Disasters requiring you to move (Wildfire, Flood, etc.)
-Financial Problems due to sudden unemployment
-Loss of financial records NOT due to negligence (Ex:. Your house burned down and took the file cabinet with it)
Use Your Common Sense: This is the IRS you’re dealing with. Excuses like, “My Dog ate my Tax Records!” are not going to cut it.
Prove it! Now you know that if you prove you had Good Faith and Reasonable Cause you can prevent penalties from accruing on your debt. The challenge is proving both without a shadow of a doubt. It wont be easy- The IRS wants very specific information from you. It would be a big help to hire a Tax Professional who knows all the loop holes to aid you in your battle.
Now you Have the Smoking Gun…Use it!