Many end up paying more to the IRS in tax debt because they paid the entire IRS penalties when they could have gotten them reduced or forgiven. The IRS places penalties on your tax debt for any kind of non-compliance, including late filings of tax returns, a substantial understatement of taxes and back taxes. The two most common IRS penalties are due to failure to file and failure to pay taxes. If you ever find yourself missing the filing deadline or are in tax debt, remember penalties and try to get them reduced or removed.
The Penalty for Unpaid Tax is 5% of the amount of unpaid taxes per month. It can increase to a maximum of 25%. But the good news is they can be reduced or forgiven. The IRS cannot charge penalties if you can show that the delay in filing your taxes was due to what the IRS calls "reasonable causes."
Reasonable Cause can be anything that was beyond your control. It can be a hurricane, a flood, a theft, serious illness, etc. If you can prove to the IRS the reason for non-compliance, the IRS will have to follow IRS rules and forgive your penalty. Remember that the IRS is also bound by the same rules as you are.
Statutory Exceptions is another reason where the IRS forgives penalties. The tax law provides for specific exceptions. Check whether you qualify for them.
An Administrative Waiver is put into effect where the government provides penalty relief to victims of natural disasters. The IRS extended the deadline of filing taxes for victims of Hurricane Sandy this year. If you are affected by a natural disaster, send a request to the IRS for the removal of penalty fees for late filing of taxes.
To get a penalty removed or reduced, you need to send a written request to the IRS. In cases of tax debt, taxpayers are also looking to get their back taxes resolved. They may try for a penalty abatement in the process of resolving their back taxes.
The IRS will take what it can, but you can save yourself much money in penalties if you act at the right time on the right issue.