When dealing with your tax most likely your primary concern is how much of a hole you will find yourself in financially. Clients commonly avoid dealing with their tax debt simply out of fear that the number of zero’s on the bill will bury them alive. While this is a valid concern it is advisable to approach the matter prudently and this means taking the first step of obtaining a formal resolution of your tax debt. Seeking abatement from penalties and interest as the first order of business without giving authorities the opportunity to establish reasonable cause will sabotage your efforts.
The most common reasons for penalties being applied are related to failure to file, failure to pay, federal tax deposit penalty, estimated tax penalty and the Trust Fund Recovery Penalty (TFRP). In the event that the IRS establishes reasonable cause they will consider removing penalties. Evidence needs to prove that the taxpayer had every intent to act in good faith however non-compliance was not due to wilful neglect. The taxpayer will be required to show an absence of direct knowledge leading to tax accrual. When faced with this situation clients are advised to remain factual, and focus on the timelines that overlap with the accrual.