With tax season rolling around, we’ve received numerous questions regarding how to avoid paying penalties. Usually, we ask that clients come to us before the IRS wants to nail them, however, when you’ve made a boo-boo, or there is a mistake that needs correcting (or you just got caught cheating), sometimes the right answer can be found in form 843 — Abatement of fees/costs/penalties. That’s a fancy terms for waiving or lowering bad-boy penalties charged by the IRS.
Two criteria really make form 843 work well. First, if you filed to extend your tax paying deadline, and you let the IRS know there was an issue before you were late, you can almost always successfully ask for abatement (i.e. drop them penalties, b**ches…) Secondly, if the fault was not your own. For example, if you jointly filed, but your spouse didn’t provide you with a W2, or an employer reported different numbers. Those would reasons. Additionally, we occasionally run into issue regarding pre-tax HSA spending (that’s medical payments from your health savings account). If you don’t file the correct forms, all the pre-paid tax credits are charged back to you, and any deductions from the account are not tax deductible. Oops! Correct the forms, and file and 843 to waive the penalty (if needed).
Be aware that in both instance above, timely filing of your taxes is critical. Although the IRS requires you to submit your estimated tax payment with the request for an extension, even if you do not, you have a good argument that you let them know what was going on. Communication is key. Finally, talk to a tax lawyer about form 843. No matter how good TurboTax or H&R Block is with tax processing, only a lawyer can give you legal advice about how to get out of an, “oops, I screwed up!” situation.
Finally, you MUST file a Form 864 if you intend to challenge your right to a refund or abatement in Court. Tax Court will NOT consider an abatement request that was not raised at an administrative hearing, or with an appeals officer. Giamelli v. Commissioner, 129 T.C. 107, 115 (2007). See also, Day v. Commissioner, T.C. Memo. 2014-215 (holding that an interest abatement claim was not properly raised in a CDP hearing where the taxpayer failed to follow advice to file Form 843 and provide other information in the CDP hearing). T.C. is an abbreviation for “tax court.”
Do you have a tax question? We do taxes for business and individuals. We can help you find legal tax shelters, defend against audits, and even file 843’s on your behalf! Never speak to the IRS without representation, and never respond to a proposed tax “correction” letter without consulting us first. Very important!. You may reach us at 1-800-579-9864 or