The Internal Revenue Code provides a penalty for late filing or late payment. The penalty can be 25% of the amount of taxes due plus interest on the tax and also on the penalty itself. Over time penalties can be stacked and in some cases actually double the amount of tax due.
There is a relief provision if we can prove we acted in a reasonable and prudent businesslike manner but were nevertheless unable to timely file or timely pay without undue hardship. These words are legal terms of terms of art and have been analyzed by the courts for years in in literally thousands of cases. There are dozens of reasons that the courts have accepted as constituting undue hardship.
So the system works like this. You file your return late or file on time but you owe taxes. The IRS computer automatically assesses a penalty and interest on that penalty. A bill is sent to you for payment by the collection division.
At that time you can send a letter and explain why you were unable to file or pay on time. In the normal course of events, some clerk buried deep within the bowels of the IRS service center will punch a button and you will get a computerized rejection letter. In my experience these rejection letters often have nothing to do with the reason that you provided. For example, I have applied for relief due to medical hardship and received a rejection letter saying that financial reversal is not a grounds for abatement. Again, the rejection letter often has had nothing to do with my application.
At that stage you can ask for an appeals conference. Normally these are accountants or lawyers who have years of experience in often times complicated cases. They are charged with the responsibility of trying to settle the case without trial. They are able to do so in the majority of cases and could travel to meet with us face to face . Typically these are excellent agents who try to resolve the issue fairly.
Unfortunately the IRS has implemented a new procedure which bypasses this time proven system. Instead of allowing us a face to face conference with an appeals officer near our location or one who circuit rides to our location, the IRS has foolishly decided to centralize penalty abatement requests in the Ogden Utah service center. This means the vast majority of our penalty abatement requests are being handled by telephone with agents far away from us.
Worse, we no longer have the right to a conference with an appeals officer. Instead, the IRS has hired a bunch of “appeals tax specialists” to review our application. . I have found them to be poorly trained, close minded, and unfamiliar with the legal complexities. They seem to have a heavy workload and are mass producing rejection letters. I often receive a letter telling me that my application has been denied unless I have new information based upon the file as they see it. Now keep in mind they have made this determination without a conference so they have no idea what I intend produce.
There are several ways to avoid the Ogden group but you have to be really knowledgeable about how to do so. It is a difficult process to undertake but in my experience you really are not going to get a fair hearing with someone competent there.
I am hopeful that this article is reviewed by someone within the Internal Revenue Service or someone within Congress who can change this non-functional system. In my mind it is in abusive interpretation of the relief provisions of the statute which worked so well in the past but has been taken over by salaried government bureaucrats interested in fast tracking bad results.
David Leeper is a Board Certified federal tax attorney with 38 years experience . He can be reached at 915-581-8748 or by email at firstname.lastname@example.org