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Almost every tax liability comes with extra baggage—namely, penalties and interest. The older the liability, the more the penalties and interest. The IRS allows “Abatement,” or forgiveness, of some of these penalties and the interest attached to them.  

Three types of Abatement, with different criteria and strategies for each include:

  1. Reasonable Cause: There was a good reason why you were unable to file or pay your taxes on time, and you are able to demonstrate this.
  2. First Time Penalty Abatement: You did not previously have penalties during a 3 year look back period, all current returns are filed, and you have paid or made arrangements to pay taxes due. Administrative relief can also apply if you have received incorrect oral advice from an IRS agent.
  3. Statutory Exception: You can demonstrate that you requested advice from the IRS, and the IRS responded with incorrect written advice.

An Abatement may even be granted after the balance has been paid in full. When this happens, the IRS may send a check or apply a credit towards other unpaid taxes for the abatement amount granted. You should be aware there are time limitations in which the IRS must give you a refund or credit. If this time expires, then the IRS may withhold those refunds and credits.

It’s important to note that Abatements have limitations; they only apply to certain types of penalties, and they cannot forgive interest on the principal balance. Interest will be removed that has accrued on any penalty abated. For this reason, many find Abatement to be one helpful component in a larger overall strategy.  

For others—especially for those who qualify for refunds—Abatements can provide just the relief they need.

To learn more about abatements and other types of tax relief, contact WatchGuard today for a free consultation.

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