IRS Penalty Abatement

Service description

Recover or reduce IRS penalties as far back as 2001 for failing to file a tax return, pay on time, and/or to deposit taxes when due.

Benefit

Refund from the IRS or reduction in penalty balance due to the IRS.

ROI

Reductions of penalty balances due occur immediately. IRS refunds can take between 2 weeks and 6 months.

When you benefit

As needed — one engagement per penalty or notice, usually after a late filing, payment, or deposit has been assessed.

What it costs

Typically 5%-30% of the value recovered. If negotiated, usually the larger the recovery the lower percentage paid.

When you pay

Depends on the Business's financial circumstances as well as the size of the recovery. Typically, smaller recoveries require payment upfront while larger recoveries split invoices, 1 to start the service and 1 at the complete of the service or upon actual recovery by the Business.

Your commitment

Business signs an IRS Form 2848, usually prepared by the provider.

Documents to gather

• The IRS penalty notice or notices you received
• Federal returns for the affected tax years
• IRS account transcripts for those years, if you have them
• Any correspondence already exchanged with the IRS about the penalty
• Records supporting reasonable cause — medical, disaster, or reliance documentation

Risks to know

There are two timing risks. First, if a penalty is still accruing, the service does not stop more penalties from accruing, it only abates previously accrued penalties. For example, if the Business is late on paying their Federal income taxes they are accruing penalties for failure to pay. If the penalties already accrued are abated before the Business pays its Federal income taxes, then failure to pay penalties will continue to accrue after the abatement. In this case, the taxes should be paid first, then the Business should seek abatement of the penalty. The second timing risk is choosing which year to request. Typically, except for particular circumstances, penalty abatements must occur at least 3 years apart. So if the Business is expecting to incur a larger penalty this year then they have in the three previous years, then the Business should wait until the penalty for this year has accrued and seek abatement for the largest penalty within a 4 year period.

When risks arise

When the request is filed, and again if the IRS asks for more support.

The process

Business provides service provider the necessary information to complete IRS Form 2848. Service provider prepares the IRS Form 2848 and the business signs it. IRS Form 2848 is submitted to the IRS to give service provider access to business's IRs tax account for investigation into penalty abatement opportunities. Once identified, the service provider often presents those opportunities to the Business, negotiates a fee, then contacts the IRS on the Business's behalf to negotiate for the penalty abatement.

Common industries

All

Further research

(i) Internal Revenue Manuals (IRM) 20.1.1.3.3.2.1 (ii) Penalties Eligible for Abatement: Internal Revenue Code (IRC) 6651; IRC 6656; IRC 6698; IRC 6699