Insurance World

When it comes to fixing their IRS problem, one of the most common things people want is an abatement of their penalties and interest.

I want to start with two precautions worth pointing out.

First of all, note that there are no provisions within the law for the removal of interest charges unless they were accrued because you got bad advice from an IRS employee, which is extremely rare and extremely difficult to prove (write down everything when you talk to the IRS, by the way!). If a salesperson at a tax resolution firm is telling you that they can get interest charges abated, run away very quickly, because you're talking to somebody that is either outright lying to you or is an idiot.

Second, note that penalty abatements are not automatic. If you are being guaranteed by a company that they can get a certain amount of your penalties removed, you're also being lied to. Again, there is NO GUARANTEE that the IRS will EVER grant a penalty abatement.

With those two points in mind, let's consider your penalty abatement application. In order to get penalties abated, you have to demonstrate two significant things:

1). Despite exercising "ordinary business care and prudence", you were still unable to meet your tax obligations.

2). Your reason for not being able to pay your taxes on time falls under one of the IRS "reasonable cause criteria".

When submitting a penalty abatement application, since there is no form, you're basically just writing a letter. This letter needs to address both of the items above. It's basically an explanation, with timelines, people involved, and any and all documentation available to prove your case. In reality, it's not just a carefully crafted letter -- it's an entire package of "stuff".

The demonstration of "ordinary business care and prudence" is very important. In short, you have to demonstrate that you did everything in your power to get the taxes paid, but due to circumstances entirely beyond your control, it simply wasn't possible. The thing to keep in mind regarding this standard is that the people reviewing your application at the IRS have most likely never operated a business in their entire lives. In fact, most of them are lifelong civil servants, and have little, if any, actual grounding in what "ordinary business care and prudence" entails in the real world. Therefore, your explanation must be written in very simplistic, easy to understand terms, and actually outright explain what is customary for your type of business or a family in your area.

For example, if you are applying for an abatement of penalties for failure to pay personal income tax, you must explain that the average family of four, just like yours, in your hometown lives in certain size and value of homes and drives certain types and values of cars, and that your lifestyle is therefore "ordinary and prudent" for your area and income, rather than lavish in comparison.

Just for the record, this does not mean that higher income individuals that live more lavish lifestyles can't get penalty abatements, but it is definitely far more difficult, and something you should seek professional assistance with, rather than trying to do on your own.

Now what about these "reasonable cause criteria"? Basically, the IRS requires you to have been involved in some unordinary circumstance in order to get an abatement of penalties. Here are some questions to consider that center around reasonable cause criteria:

Were any business records lost or destroyed?
Were there any circumstances that led to a substantial drop in collecting on accounts receivable (or wages)?
Was there any transition in the business that lead to the failure to pay taxes?
Was there a death or serious illness that directly affected the business or personal wages?
Was there any embezzlement of funds, theft of valuable property, or identity theft?
Were there any alcohol or drug abuse issues that affected the business or wage earning capability?
Was there a natural disaster that impacted you or your business?
Did you rely on the advice of a CPA or IRS employee in making tax decisions?
Were there any circumstances that created substantial financial hardship, to the point where you or your business was close to going bankrupt?

If your circumstances fall into one of these questions, then you may meet reasonable cause criteria. Explaining your circumstances to the IRS in your letter that demonstrates reasonable cause then becomes the final part of applying for your penalty abatement.

Jassen Bowman is an IRS-licensed Enrolled Agent, and assists small businesses and individuals with resolving IRS tax debts. If you are looking to apply for a penalty abatement, get your FREE copy of Jassen's powerful IRS penalty abatement sample letter.

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Given the tumultuous environment of today's economic climate, credit card debt and other (secured and unsecured) loans have become a commonplace occurrence, but the true extent of the overall problem is in reality even more troubling than typically understood. Yes, for a full accounting of the potential consequences, the financial burdens to consumers must also include the amount of taxes owed to the Internal Revenue Service each year. Recent governmental reports confirm that an average of nineteen percent of the taxpaying population owes some amount of past income tax obligations, be they unpaid debts following an improperly handled filing or some unreported sums that the consumer neglected to document during the process of filling out a return.

What many tax debtors fail to realize is that, in both circumstances, there are debt relief or debt settlement measures that can be realistically taken to lessen the constant strain and apprehension that these burdens exercise on the individual who is unable to come up with the adequate resources needed to resolve unpaid tax issues. Furthermore, essential consumer tax knowledge that should be considered among the most primary of concerns to anyone in debt to the IRS is the threat of the tax penalty and its complicating effect upon the total debt sum. Of these penalties - all of which carry a risk of exposing a very real danger to debtors, complicating an already daunting debt predicament - the prevailing threats are typically invoked by tax authorities for three basic reasons: failure to pay, failure to file, and interest upon unpaid taxes.

Though each tax penalty is calculated according to different standards, all have the capacity to increase what could be an already ominous debt load. Unfortunately, it's not unreasonable to presume that the majority of tax debtors maintain less than a clear understanding of the effects that a tax penalty may bring to bear upon a lingering obligation, which emphasizes the inspiration at the heart of the debt relief concept. Consequently, there is an undeniable truth in the suggestion that, for almost all cases, the benefits of consulting with a tax debt authority should be the recommended course of action for devising practical tax solution and forming a catalyst for the origination of effective protection of the household's financial vitality. There is just no substitute for the swift execution and degree of profitability that a skilled tax debt professional commands.

All the same, in spite of the most sincere intentions and intrepid efforts undertaken, the average person facing tax debt difficulties - even if they are utilizing the help of experts in the field who've demonstrated a fine record of success - won't still have the best of odds attaining an advantageous outcome in debt settlement attempts with the Internal Revenue Service. Nevertheless, carefully arranged, the governmental agents are not altogether inflexible when it comes to negotiating debt relief terms that could reduce the amount of taxes owed in exchange for conceding an altered timetable that facilitates repayment. When choosing how to manage the weighty matters related to tax debts, nothing less than the security of one's financial legacy will be at stake, and severe consequences are best avoided by taking swift actions to actively remedy unfavorable conditions and improve one's position enabling independent, confident control of income and expenses.

If you want to learn more about tax debt relief or you want to get debt relief for various other debts please visit TotalDebtRelief.net for a free debt consultation.

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As a former IRS Revenue Officer, I came across a large number of Trust Fund Recovery Penalties cases. The Trust Fund Penalty can and will have a damaging effect on taxpayers who were found to be responsible to pay these taxes. This article deals with that issue and why?

It was part of my job was to train IRS Agents on determinations for the Trust Fund Recovery Penalty. The general rule is, " hold everyone and anyone responsible" by applying this method, the tax will eventually get paid in full. Though IRS will never admit to this method, the Agent will do just that, they will go after everyone they can for the Trust Fund Recovery Penalty.

When an IRS Agent gets a 941 Payroll or Trust Fund case on their schedule, the very first thing the Agent does, is to make an on-site visit to the corporation, to ask the corporation for full payment. Many times the corporation is out of business, and the Revenue Officer must track down responsible officers or those who were expected to pay the payroll taxes to the IRS. Once the IRS has made contact with at least one person who was involved with the company, they will interview the person by taking a detailed and lengthy interview with Form 4180 (Report of Interview with Individual Relative to Trust Fund Penalty)

Some of the determining factors used to find individuals liable for this penalty are as follows:

1. Which individuals determine financial policy?
2. Which individuals authorize payment of bills?
3. Which individuals opens or closes bank accounts?
4. Which individuals signs checks?
5. Which individuals authorizes payroll?
6. Which individuals makes tax deposits?
7. Which individuals sign tax returns?
8. Which individuals oversee the hiring & termination of employees?
9. Which individuals run business on a day-to-day basis?

The IRS will review these answers based on sufficient documentation. IRS will then contact banks for information such as bank signature cards, corporate resolutions, copies of checks.

One more acid test used by the IRS Revenue Officer, would be to look to see who signed checks and took distributions from the company- the bottom line is, follow the money trail.

When dealing with the Trust Fund Penalty, one should be represented by a professional tax firm or representative.

Michael D. Sullivan is a seasoned IRS tax expert. Learn more about Michael and the services he provides at http://www.freshstarttax.com/.

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