I am a Forensic CPA; I work with taxpayer’s needing help resolving tax disputes between themselves and the IRS and/or state tax authorities. My office is located in Minneapolis, MN, however, my client base is spread throughout Minnesota and other states. In 2021 the U.S. Treasury Department and IRS extended the federal income tax year 2020 filing due date for individuals from April 15, 2021, to May 17, 2021. They also postponed the payment due date for individual federal income tax payments from April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. Because of COVID, the IRS temporarily scaled back its efforts to collect unpaid taxes. Now in 2022, the temporary scale back has ended. The IRS has gone on a hiring spree and is actively pursuing taxpayers with unfiled and/or unpaid taxes! They are also assessing penalties and interest for the unfiled and/or unpaid taxes!
However, when it comes to the penalties and interest, all is not lost. There are some opportunities that taxpayers can take advantage of, if they qualify, that could reduce and /or eliminate the penalties and interest.
In addition to the first-time abatement of penalties the Internal Revenue Manual lists nine reasonable cause defense arguments that taxpayers can present to the IRS to request penalty abatement. Bear in mind, it is the taxpayer’s responsibility to prove to the IRS that they have a legitimate excuse for not filing or paying on time and they exercised ordinary care and prudence.
The defense arguments must be in writing, the events must relate to the years for which penalty abatement is being sought and there must be third party documentation supporting the events. The events I am talking about are:
1. Death or Serious Illness, or Unavoidable Absence,
2. Fire, Casualty, Natural Disaster,
3. Unable to Obtain Records,
4. Mistake was Made,
5. Erroneous Advice or Reliance,
6. Written/Oral Advice From the IRS,
7. Ignorance of Tax Laws,
8. Reasonable Cause/Ordinary Care and Prudence,
9. Undue Financial Hardship
Please note, insufficient funds is not a viable defense!
It is important the taxpayer show they did everything in their power to comply with the existing tax rules in effect at the time. The IRS would expect to see that the taxpayer acted in the capacity of an ordinary, reasonable, and prudent person but was still unable to comply.
The request for abatement must be factual, it must explain the history and must contain applicable documentation. You want to make the job of the IRS Examiner as easy as possible. Your documentation should include everything you want the Examiner to consider, nothing is too trite!
If you or someone you know has unpaid taxes or other federal or state tax issues and you are looking for some peace of mind, feel free to contact me at either (952) 405-2082 or by email at email@example.com.
Frank Nute MS, CFE, CPA, CFF, CGMA, CTRC
Frank E. Nute Certified Public Accountant PC
3300 Edinborough Way #550
Edina, MN 55435
Ph. (952) 405-2082
Fax (952) 405-2083
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