Each year, the IRS issues more than 30 million penalty notices to taxpayers. Few citizens realize that 100% of all penalties are subject to cancellation. Nearly every penalty section of the code includes what is referred to as a good faith, or “reasonable cause” provision.Very simply, that provision allows anyone who is issued a penalty to request abatement of that penalty when he can show that he acted in good faith and and based upon a reasonable cause for his actions.

 

When you get a penalty notice, you must first verify that a mistake was indeed made. If the IRS does not include an explanation of the error made, ask for one. Always communicate via certified mail, return receipt requested. Once it is established that the mistake is yours, you must communicate to the IRS that you always acted in good faith and then provide your reasonable cause explanation for the circumstances that caused the error.

 

The tax law is very confusing and the IRS makes as many, or more, mistakes than the average person. That’s why they cancel about half the penalties issued when a proper request for abatement is made.