Facing a large tax liability is an uncomfortable situation for anyone. However, once penalties and interest are added to your tax liability, the problem becomes even worse. Fortunately, under the right circumstances, you may be able to mitigate some of the penalties or interest charges.
The word “abatement” means to forgive, reduce or alleviate a portion of something. This is exactly what you are aiming to accomplish when filing a tax abatement request with the IRS or California FTB, BOE or EDD. That is, assuming that you have a valid reason for doing so.
Although you can attempt to roll the dice and go it alone, your odds of success are greatly improved by working with a qualified tax consultant. The professionals at Rex Halverson & Associates have a long history of helping California taxpayers with their most pressing questions and concerns.
Contact us today at (916) 444-0015 to learn more about all the services we can provide to you or your business.
Reasons to File
While many people assume they are powerless to fight state or federal tax authorities, those that do are often pleasantly surprised by the results. True, the IRS, FTB, BOE and EDD do impose millions in penalties against taxpayers each year; but, they also often abate or reduce penalties when provided with all the facts and the proper evidence to substantiate the position taken in a tax return.
Abating interest and penalties can make a significant impact on your final tax bill, as they often add up to 10% or more of the initial tax liability. Not to mention the fact that interest continues to accrue even after an appeal has been filed.
The larger the amount of tax owed, the bigger a penalty abatement or reduction can be.
The key is in knowing which facts to provide – and likewise – what other information to exclude. Tax litigation is a complex area of law which can be confusing for even the most well-informed individuals. However, working with a knowledgeable tax professional who specializes in tax advice and counseling can make the entire process a much less stressful experience.
These are a few points to keep in mind when filing for an abatement of penalties:
- While an abatement request may reduce some interest and penalties, you’re still on the hook for the original tax liability owed.
- If you lose your appeal or request for penalty abatement, in many cases you’ll be expected to pay your full balance immediately. This can cause financial hardship for some.
- You need to have a convincing argument as to why you believe your claim is valid. No one wants to pay extra taxes, penalties and interest, but without a justifiable reason for your penalty or interest abatement request, you’re still going to have to pay.
- Don’t ask for an abatement unless you have a “clean” record with the taxing authority. Having previous delinquent or unfiled returns will likely doom your request from the start.
If you have questions about whether or not an abatement request might be the right solution for you, contact our office at (916) 444-0015. We’ll answer any questions you may have, and help you choose the best course of action to fit your needs.
So what exactly qualifies as a valid reason for abatement of penalties? The IRS has established some general guidelines as to what are considered acceptable circumstances, but the final verdict is still based on the specific facts of each case.
Most taxing authorities require that a taxpayer make a reasonable cause argument to prove the merits of their claim. Simply put, a taxpayer must have adhered to sound business or accounting practices, but was unable to pay their liability due to extenuating circumstances. Here are some of the most common examples:
- Family Emergencies – death of a loved one, medical illnesses or other serious injuries
- Natural Disasters – fires, floods, droughts, earthquakes or other unforeseen circumstances
- Severe Hardships – a family member losing their job, becoming disabled or being incarcerated for extended periods of time
- Honest Errors – overlooking an important piece of information by mistake rather than on purpose
- Ignorance of the Law – simply not understanding what was required or how it was to be presented
- Trouble Obtaining Information – difficulty in gathering necessary records, statements or receipts personally or from other third parties
- Bad Advice – in either written or oral form coming from tax advisors, state taxing agencies or the IRS
- Administrative Errors – improper credit for payments, non-applicable charges or fees and general unresponsiveness from the taxing authorities themselves
- Exemptions or Waivers – that are justified under allowable conditions
Again, the details of each case will determine the final decision. But if the taxpayer has made an honest effort, there is some “wiggle room” for leniency. In most cases, when the IRS has granted an abatement, the FTB will follow suit.
It bears mentioning that taxpayers who have not had a previous delinquency, and are in otherwise good standing with the IRS, can file a claim under the First Time Abatement Rule. Although this request must still be sent in writing, the abatement comes in the form of an administrative waiver which is much easier to qualify for.
Despite the obvious benefits of filing for a first time abatement, very few of those who qualify actually do file. Regretfully, failing to take advantage of this opportunity can cost taxpayers hundreds and even thousands of dollars in unnecessary penalties.
Help with California Tax Penalty Abatement
As with most any type of negotiation, having in-depth knowledge of the subject matter is paramount in achieving results. Tax appeals are no different. Rex Halverson, the founder of Rex Halverson & Associates, understands California tax law as he has been in tax practice for over 39 years.
As a former California Deputy State Controller-Taxation, Mr. Halverson has extensive experience working with both the California Franchise Tax Board and Board of Equalization. He also previously served as a Director and State and Local Tax Practice Leader for the Western Region at KPMG, LLP – one of the largest public accounting firms in existence.
The team at Rex Halverson & Associates bring with them an unparalleled level of knowledge, service and professionalism in all areas of tax advocacy and consulting. We take tremendous pride in helping our clients understand tax law and assisting them with their audits, protests and appeals.
If you need help with a specific tax issue or appeal, or are just looking for general tax assistance, please contact our office today and get the answers you need.
Remember, you don’t have to go it alone – there is help available. Call us at (916) 444-0015 and let’s talk about your case.