Although clear tax regulations specifically governing digital assets still do not exist, the taxation of digital assets, and consequences for not properly complying, are very real. This is why the thought of being able to completely erase IRS tax penalties sounds too good to be true! but IRS penalty abatement is an option for those who qualify! Let’s explore penalty abatement and Form 843 and how Individuals and businesses can apply to have their IRS penalties abated.
Before we begin, let’s run through the criteria that must be met by a taxpayer and or business before qualifying for first-time penalty abatement. In order to qualify, you must meet the following:
(i) You must not have incurred any penalties within the past 3 years
(ii) All prior tax returns and extensions must have been filed on time;
(iii) Any and all taxes due must be paid in full. If not paid in full, a pre-set payment arrangement must be scheduled.
Once these criteria have been checked off you can begin the application process. For those that are not familiar, the application process can be completed either online, in person or by mail and should include the following:
(i) Penalty amount
(ii) Tax Identification number
(iii) Category of penalty assessed
(iv) Tax year in which the penalty occurs
Please note, just because you file your application with the necessary information, the IRS may still choose to reject your application. In the case that this happens, it is highly advised that you consult an expert to aid in your appeal request.
Let’s take another instance. Say you receive written advice from the IRS, follow the proper steps, but are still assessed a tax penalty. What should you do?! While we completely understand that this situation is not ideal, it can happen. If this happens to you, we are here to tell you what to do! In the event you receive incorrect advice from the IRS, you have the ability to file for what is referred to as statutory exception penalty abatement.
Individuals can generally use IRS Form 843 to request this type of IRS penalty abatement. It is important to note, this form can only be submitted by individual taxpayers and not businesses.
In order to request statutory exception penalty abatement, you must include the following in your request:
(i) A copy of your written request for advice;
(ii) The written advice you received and relied upon from the IRS;
(iii) Tax return displaying the penalties assessed due to your reliance on the advice received from the IRS;
(iv) IRS notice indicating an increase in tax and penalties owed that corresponds with the portion of the tax return where IRS advice was utilized.