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Back Tax CPA discusses IRS penalty abatement letters

Back tax CPA ponders why folks don't file their taxes.

Gary Bode, CPA: many back tax cases generate a refund for the client. For a free initial consult, please call 399-2705.

Part of a back tax CPA’s job is explaining away penalties. So, we think about the reasons why folks don’t file on time. In some cases, IRS penalty abatement is automatic, at least if you ask. Other times they may recognize circumstances beyond your control as a valid reason for penalty abatement.

Back Tax CPA tips on crafting an IRS penalty abatement letter Back tax CPAs generally request penalty IRS penalty abatement as a routine step for back tax return cases. Here are some tips if you want to write your own penalty letter:

  • Don’t aggravate your IRS Agent during earlier parts of the back tax case.
  • Include a comment about now being in full IRS compliance.
  • Include a statement that you now understand your compliance requirements and promise to stay current with the IRS.
  • Cite prior good compliance with the IRS.
  • Do some homework on penalty abatement on the IRS website.
  • Don’t be bitter about the IRS in the penalty abatement letter.
  • Remember the IRS Agent has some leeway about penalties.
  • Explain the financial devastation the penalties inflict.
  • Some Folks say a CPA signed penalty abatement letter is better than a personal letter. Or another third-party, like your Priest, Minister, Doctor, Lawyer, etc.

“The best advice on an IRS penalty abatement letter? Have several people edit it before mailing. Never mail the first draft.” – Gary Bode, back tax CPA

Some Common Reasons Back Tax Clients Give for Non-Filing

  • Ignorance. While the IRS doesn’t usually accept this one, I have seen cases where the tax payer couldn’t have reasonably known about their IRS responsibility.
  • Procrastination. People will be human. Doesn’t make them bad.
  • Missing documentation. CPAs can help prepare substitute documentation or find copies of the original.
  • Couldn’t pay. Note that all back tax CPAs see cases where the result is a tax refund!  So I suggest folks calculate their tax liability before not filing.  The IRS doesn’t allow refunds after three years. While failure to file is understandable when you can’t pay, filing and not paying incurs less penalty than just not filing.
  • No immediate consequences. The IRS doesn’t zap you on April 16th if you don’t file. And it can take years before they do. Which is a dis-service to some taxpayers. Back tax CPAs agree clients usually call after they get that first IRS or State notice.

Reasons the IRS may Accept for Filing Late

  • Destruction of your records. Well, you can’t just tell the IRS your dog ate your home work. And they’re skeptical too, go figure. Probably more so than even Miss Randall, my 3rd grade teacher who didn’t believe me when I tried that excuse!  But tornadoes, hurricanes, floods, fires, divorce, computer crashes, thefts etc. do happen. Back tax CPAs try to proactively document the cause of  destruction for your case with pictures, newspaper articles, police reports, witness narratives, repair orders etc.
  • Death/illness of the taxpayer or immediate family. Again, back tax CPAs try to document this with obituaries, hospital bills, doctor notes etc.
  • Unavailability of IRS Help. Presenting back up documentation, like dates of calls, name of the IRS agent etc., all help build your case. Hanging up over frustration secondary to a prolonged phone queue probably won’t work as an excuse!
  • Active duty overseas.
  • Incarceration.

While not always possible, back tax CPAs try to portray a reasonable scenario for non-filing. In my experience, the IRS is surprisingly humane when presented with a legitimate explanation, even if it doesn’t exactly conform to the above list.

Strange but True: Some Back Tax Cases Result in Refunds

Again, all back tax CPAs see cases that generate a refund for the taxpayer. Maybe because CPAs know all the legitimate loop holes. But these refunds make non-filing harder to understand.

Ways Back Tax CPAs are Useful

  • The IRS generally grants us additional time to prepare your case. Which gives you some breathing room.
  • We calculate the correct amount you owe, if any. Remember, back tax cases can generate a refund!
  • Back tax return preparation. The IRS will prepare a “substitute” return if you don’t file. But they don’t factor in credits or deductions. So, their demand is always more than what a properly prepared return shows. Personally, I think this is just a ploy to encourage submission of correct returns; they don’t expect to collect the full amount of their demand.
  • We help you pay the least amount of tax. Sometimes an Offer in Compromise will let you pay “pennies on the dollar”.
  • We can help get an actual Agent assigned to your case. Back tax CPAs hear consistent stories of frustration over the IRS’ automated collection service.
  • We try to get the IRS and States to abate non-filing and under payment penalties.
  • We help you setup payment arrangements if you owe taxes. Installment Agreements may allow paying your taxes over time without a tax lien.
  • We get the IRS and States to release liens and garnishments perhaps even before your case is fully resolved..
  • We’re your advocates for powerful organizations. Tax savvy isn’t all we offer.

We’re a back tax CPA firm with a virtual office to accommodate long distance clients. Your tax due shouldn’t depend on the quality of your CPA, but it does. For a free initial phone consult, please call (910) 399-2705.

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