You are under a monthly installment agreement and it seems as if the balance is not decreasing. You examine your statement and discover that you are not just paying the balance and interest, the IRS is also charging penalties. Many taxpayers are unaware that some penalties will continue to accrue until the tax debt is paid in full. The interest does not accrue on the original tax debt alone; it also accrues on the added penalties. Fortunately, the IRS does have special programs that will allow for penalty relief.
The IRS may provide penalty relief under its First Time Penalty Abatement policy. Relief is available if you failed to file a return, pay your taxes on time, or failed to make a tax deposit. To qualify for relief you must satisfy the following conditions:
1. You have not been assessed a penalty for 3 years prior to the year in which you received a penalty;
2. You have filed all of you tax return; and
3. You have paid, or arranged to pay, your tax liability.
If all of the conditions are met, the IRS may waive the penalties associated with your tax debt.
Keep in mind that if you are assessed a penalty for failing to pay your taxes, that penalty will continue to accrue until the tax debt is paid in full. It is advisable to wait until the taxes are fully paid before requesting penalty relief. Also, if you receive incorrect information from the IRS, you may qualify for penalty relief even if you do not satisfy the conditions above. Moreover, if the penalty is waived, the interest associated with the penalty will be reduced or removed.
For more information or to see if you qualify for a First Time Penalty Abatement, please give us a call.