DUAL LICENSED PENALTY ABATEMENT TAX ATTORNEY AND CPA
In 2011, Avalon Bay was ordered to pay $215,000 penalty because of the failure to make a timely payment:
This was the ruling fromAvalonBay Communities, Inc. v. County of Los Angeles, 197 Cal. App. 4th 890, the court upheld a $215,000 penalty because of the failure to make a timely payment.Despite a delay in payment and the fact that the payment deadline was missed by only two days, the court maintained its imposition because the circumstances were within the taxpayer's control.
Similarly, in First American Comm. Real Estate Svcs., Inc. v. County of San Diego, 196 Cal. App. 4th 218 (2011), a $600,000 penalty was upheld by the court despite the deadline being missed just by one day due to an error on the internal spreadsheet used to make wire transfers. The penalty was sustained even though the taxpayer missed the payment due to an error that was rectified immediately. TheFirst American court acknowledged the situation and presented a sympathetic case for the cancellation of the penalty. During the proceedings, the court pointed to the taxpayer’s initial actions and correspondences as proof that the taxpayer failed to present any grounds for meeting the statutory requirements for abatement. This article will tell you about how you can save yourself from a late payment penalty.
When will the IRS abate penalties?
The IRS permits the abatement of penalties if taxpayers fail to comply with timely tax payment due to a reasonable cause. “Reasonable cause” means that the taxpayer exercised ordinary business care and prudence in their tax obligations, however, failed to comply. See IRM 220.127.116.11.2.2, Ordinary Business Care and Prudence. A taxpayer can file for a pre-payment or a post-payment penalty waiver in the event that the taxpayer has paid the tax penalty in full. The taxpayer must submit the request of refund for a tax penalty already paid in full within the current applicable statute of limitations.
Examples of reasonable cause:
Death, serious illness, or unavoidable absence
- Death, serious illness, an unavoidable absence of the taxpayer or death (i.e., spouse, sibling, parents, grandparents, children) or serious illness in the family qualifies as a reasonable cause for filing, paying, or depositing a late. The death, serious illness, or an unavoidable absence of the taxpayer with the sole responsibility of executing the rerun, making the deposit or paying the tax, or taxpayer’s immediate family qualify as a reasonable cause.
- If someone other than the taxpayer is responsible for authorizing and meeting with the tax obligations, the reasons why the person did not meet the requirements are considered. It will be evaluated whether the authorized person was keeping with ordinary business care and prudence
- Information to consider when evaluating a request for penalty abatement based on a reasonable cause, for example, death, serious illness, or unavoidable absence includes:
- The date of death.
- The dates, duration, and severity of illness.
- The dates and reasons for absence.
- How the event prevented compliance.
- If other business obligations were impaired.
- If tax duties were attended to promptly when the illness passed, or within a reasonable period of time after a death or return from an unavoidable absence.
Fire, casualty, natural disaster, or other disturbance reasonable cause
- The IRS will determine whether the taxpayer did not comply with the payment deadline as an “affected taxpayer” eligible for disaster relief as provided in IRM 18.104.22.168, Identification of Covered Disaster Area, Postponement Period and Affected Taxpayers. Also see IRM 22.214.171.124.3.6, Official Disaster Area.
- For taxpayers not an “affected taxpayer”, reasonable cause relief from a penalty may be requested in case of a failure to comply with the requirements to file a return or pay tax due to a fire, casualty, natural disaster, or other disturbance. Although, it needs to be noted that a natural disaster does not provide penalty relief.
- Penalty care may be applicable if the taxpayers exercise ordinary business care and prudence. However, the taxpayer was unable to comply with the law due to circumstances beyond the taxpayer’s control. For example, the taxpayer was unable to access their records due to a fire.
- The taxpayer or responsible party is unable to comply due to an accident, death, serious illness, or unavoidable absence.
Unable to obtain records
- The taxpayer or responsible party is unable to obtain records due to an accident, death, serious illness, or unavoidable absence.
- In some instances, the inability to obtain necessary records due to a reasonable explanation may constitute a reasonable cause. However, may not in others.
- The IRS will evaluate the request for penalty relief based on the facts and circumstances relevant to each case. If the taxpayer was unable to obtain records necessary to comply with a tax obligation, the taxpayer may or may not be able to establish reasonable cause. Reasonable cause may be established if the taxpayer exercised ordinary business care and prudence.
- The information considered when evaluating the request includes but is not limited to: Why the records were needed to comply.
- Why the records were unavailable and what steps were taken to secure the records.
- When and how the taxpayer became aware that he or she did not have the necessary records.
- If other means were explored to secure needed information.
- Why the taxpayer did not estimate the information.
- If the taxpayer contacted the IRS for instructions on what to do about missing information.
- If the taxpayer promptly complied once the missing information was received.
- Supporting documentation such as copies of written letters and responses received to get the needed information.
Mistake was made
- While this is not in compliance with ordinary business care and prudence standards and does not necessarily qualify as a reasonable cause, the taxpayer may try to establish a reasonable cause by claiming that a mistake was made. However, the reason for the mistake may be a supporting factor if additional facts and circumstances support the determination that the taxpayer exercised ordinary business care and prudence but nevertheless was unable to comply within the prescribed time.
- Information considered by the IRS when evaluating for a request of abatement includes but is not limited to:
- When and how the taxpayer became aware of the mistake.
- The extent to which the taxpayer corrected the mistake.
- The relationship between the taxpayer and the subordinate (if the taxpayer delegated the duty).
- If the taxpayer took timely steps to correct the failure after it was discovered.
- The supporting documentation.
Erroneous advice or reliance
- The request for penalty relief is reviewed thoroughly for determining the abatement request if the taxpayer claims that they did not comply because of a specific advice, they received either orally or in writing. The delinquent taxpayer needs to qualify for relief in accordance withIRM 126.96.36.199.3.4.1, Written Advice From the IRS, or IRM 188.8.131.52.3.4.2, Oral Advice From the IRS, refer to IRM 184.108.40.206.2.2, Ordinary Business Care and Prudence, to determine if the taxpayer exercised ordinary business care and prudence in relying on the IRS's advice.
Ignorance of the law
- In some instances, the taxpayer may not be aware of the specific obligations to file or pay taxes and a reasonable effort has been made to comply with the law. Whether the cause is reasonable may be established based on the following but is not limited to:
- The taxpayer's education.
- If the taxpayer has previously been subject to the tax.
- If the taxpayer has been penalized before.
- If there were recent changes in the tax forms or law which a taxpayer could not reasonably be expected to know.
- Even in cases where ignorance of the law is claimed, reasonable cause is never presumed by the IRS.
- The IRS may consider forgetfulness or an oversight, while not generally keeping with the ordinary business care and prudence standard by the taxpayer or another party as noncompliance.
Ordinary business care and prudence
- Ordinary business care and prudence includes making provisions for business obligations to be met, for example, providing facts and circumstances that show that the taxpayer exercised ordinary business care and prudence but were unable to comply with the law.
- To determine whether the taxpayer exercised ordinary business care and prudence, the reason should address the penalty imposed with a reasonable cause. For example, the dates and explanations should explicitly correspond with the events on which the penalties are based. The IRS may request additional information from the taxpayer for clarification.
- The IRS will refer to the taxpayers preceding tax history for at least the last 3 years for the overall compliance history. If the same penalty has been previously assessed or abated, it may be an indication of the fact that the taxpayer is not exercising ordinary business care and may be used against you. However, failure to comply for the first time does not establish a reasonable cause.
- Length of time: the length of time includes (1) when the act was required by law, (2) the period of time during which the taxpayer was unable to comply with the law due to circumstances beyond the taxpayer's control, and (3) when the taxpayer complied with the law.
- Circumstances beyond the taxpayer’s control: could the taxpayer have anticipated the event that led to noncompliance? A reasonable cause is generally established when the taxpayer was unable to meet the timely tax obligation but otherwise exercises ordinary business care and prudence. To establish business care and prudence, a taxpayer must continue to try and meet the requirements.
Mr. Klasing has decades of experience working as a former auditor for several public accounting firms. Further he is an experienced attorney in penalty abatement cases. As a result, he can frequently anticipate the approach the IRS will take and devise a strategy to put you in the best position possible to have your penalty abated where possible. Contacting Mr. Klasing is essential as he will help you avoid making any mistakes which could further harm your case.
Why do You Need Us?
The compliance requirements are undoubtedly complex and burdensome. In order to ensure all legal requirements are being met, the best course of action in such a situation would be to consult the Tax Law Office of David Warren Klasing. For a taxpayer to request abatement, they must submit a request before the applicable limitation period. For help with a tax penalty issue, contact a tax-attorney well-versed with the nuances of resolving tax penalty issues. Our dually licensed Attorney CPAs are well-versed with the policies and procedures of the IRS, and we will make every effort needed to resolve the case in your favor. Contact our tax firm online, or call (800) 681-1295 or fill out our online form to schedule an appointment connect with our firm to resolve your tax issues. Our tax attorneys will help you navigate your tax issues at a reasonable fee.