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LAS VEGAS — If you’ve received a tax penalty notice from the IRS, it’s possible to get one fees waived tax experts say in certain situations.
The lesser known ones first reduction of fine provides relief for otherwise compliant taxpayers.
“It’s like getting out of jail without a card,” said Rosemary Sereti, managing director of Deloitte Tax and a former senior director of the IRS.
But “not every taxpayer qualifies,” she said in the annual report of the American Institute of Certified Public Accountants conferencewhich took place in Las Vegas.
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Some of the common individuals tax penalties can include non-filing, which is 5% of unpaid taxes per month (or part of a month), late refunds, up to 25%, or non-payment of 0.5% per month, limited to the same percentage.
“Very often the two penalties are applied together,” said Debra Estrem, managing director of private wealth litigation at Deloitte Tax, who also worked in the IRS’s office of general counsel.
There’s also a high civil fraud charge — a “staggering 75% penalty” — but the IRS has the “burden of proof” for those cases, she said.
Three penalties may apply to the first reduction: failure to file, failure to pay, and failure to pay the deposit, according to IRS. However, most taxpayers will not be eligible unless they file a return, Sereti said.
The IRS also expects a history of tax compliance, including timely filings, payments and no penalties. “You have to be a good taxpayer who made a one-time mistake,” she said, adding that you need a “clean record” for the past three years. You can see detailed IRS rules here.
When you receive an IRS penalty notice, you can apply for the first reduction by following the instructions in the letter.
The fastest option is usually to call the phone number in the right corner of the notice to speak with the IRS. There is also an option to send a written request by email.
If approved, you will receive another notice with penalties and interest removed. But if the IRS won’t grant your request, you can try to appeal the decision.