Tax Penalty Relief

The IRS and state tax authorities assess numerous tax penalties of varying amounts.  For taxpayers who receive an IRS notice, it is important to understand the source of the penalty to determine if tax relief is available.


What Types of Penalties Does the IRS Assess?


Tax penalties may be assessed for late filing, late payment, underpayment of estimated taxes, substantial underpayment of tax, and fraud.  Tax penalties may be based on a fixed amount or a percentage of the tax due, be assessed for missing statements or information filings, and result in additional interest due.  These tax penalties apply to both individuals and business taxpayers.  For taxpayers with unfiled tax returns or unpaid taxes, IRS penalties can increase rapidly and be substantial relative to the original tax assessment. 

How Can a Taxpayer Reduce a Tax Penalty or File for Tax Relief?

Penalties may be reduced or eliminated in some cases, even if you cannot reduce or eliminate your original tax debt. The IRS and Michigan tax codes provide safe harbors that may allow taxpayers to avoid or reduce certain tax penalties.  The safe harbor rules are tax relief options that are generally calculations a taxpayer uses to avoid the application of the tax penalty, and the IRS may not apply the safe harbor rule to determine if the penalty should not apply. 

Reasonable Cause IRS Penalty Relief

Other tax penalties may be eliminated based on reasonable cause.  Each tax penalty must be reviewed to determine if a reasonable cause exception is allowed.  Reasonable cause may include natural disasters, tax return preparer negligence, and causes outside the taxpayers control.  Taxpayers should always consider reasonable cause exceptions if the safe harbor rules do not apply to a penalty.  

Additionally, there may be options to re-calculate the penalty based on alternative methods.  Using alternative methods to the IRS' calculation, the penalty may differ substantially depending on the type and timing of income earned by a taxpayer during the year.  Further, if penalties are reduced or eliminated, the interest related to those penalties is also reduced or eliminated.


Health Insurance Tax Penalty (aka Shared Responsibility Payment)

The health insurance tax penalty applicable for failure to purchase health insurance when able to do so is no longer applicable for the 2019 tax year.  For tax years 2018 and earlier, a tax penalty applied if a taxpayer failed to purchase health insurance but was required to do so.  

If you have received a tax assessment notice that includes penalties, contact Michigan tax attorney Andrew M. Steiger at Steiger Tax Law for a free consultation to review your IRS notice.  Based on this review and a review of your IRS tax transcript, he can determine what relief options are available to you.  You can receive an up front flat fee for this service and know in advance that you will save money.

Read the Steiger Tax Blog for more information on penalty relief.  

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