In addition to an Offer in Compromise, there is another, very effective option for reduction of an outstanding tax debt. If there were circumstances beyond your control that prevented you from paying your tax debt and led to delinquency, the penalties and interest that have built up may be able to be disputed and an attempt made to negotiate them. Relief from penalties falls into four separate categories. They are:
- Reasonable Cause – Mistake made by the taxpayer, ignorance of law, death, serious illness, unavoidable absence, etc.
- Statutory Exceptions – Simple or complex legislative tax code changes.
- Administrative Waivers – Undue hardship, fire, flood, natural disaster, bad legal/tax advice.
- Correction of Service Error – Mistake made by the IRS. Source IRS
Since the criteria for waiving accrued penalties and interest is based more on your stated representations rather than financial hardship, terms for a successful penalty abatement are more rigorous. More so than any other, this option involves a great deal of skill to successfully navigate the IRS protocol to bring a successful result. If successful, results are substantial; savings are usually significant, your personal tax professional will cover the intricate details of a penalty abatement, accurately explaining why you would or wouldn’t be a candidate for this relief