Taxpayers have the right to request relief from penalties assessed by the Internal Revenue Service. The IRS sets very specific criteria for the granting of penalty abatements. It can be very difficult to demonstrate that a taxpayer’s circumstances meet the criteria for penalty relief. Most of the time, we will request a written statement from the taxpayer explaining the circumstances that lead to the accrual of their tax liability, and then use that to create our own penalty abatement request that fits to one of the IRS criterion, cites case law, etc.
Most of the time, taxpayer’s have some reason for not paying their taxes that ties back to not having the money to do so. Lack of funds does not meet IRS reasonable cause criteria, but the circumstances behind the lack of funds sometimes can be reasonable cause.
Occasionally, the taxpayer’s explanation for failing to pay their taxes doesn’t leave us with a lot to work with. On rare occasions, we receive an explanation that is quite humorous.
This example is from a taxpayer that elected to continue NOT paying his taxes because it was financially convenient. With a struggling business, a divorce, and alimony and child support to pay, the taxpayer was experiencing financial hardship. He wrote:
I financed [business] shortfalls with credit card advances and soon I had unsupportable credit card debts and many other expenses…
As things started to turn around for the taxpayer, he continues:
In early 2001 I noticed that I somehow had enough money to pay my bills. Later, I discovered that I had inadvertently neglected to call in the 941 payment [for fourth quarter], even though the check had been generated by the accounting program. I was consternated but simply didn’t have the money to make good.
This is a common reason as to why people miss a Federal Tax Deposit, often several in a row. They then try to make it up when they can. However, in this case:
I expected a notice from the IRS daily, but nothing happened and when it was time for the next 941 payment I thought, “This is the kind of tax relief I need right now.” As an expedience, I didn’t pay the 941’s for the next several months and used the respite to get back on my feet financially.
Doing this enabled the taxpayer to get current with his vendors, credit cards, etc. He skipped his payroll tax … Continue reading