Tax Non-Compliance, Penalty and Its Forgiveness

Last updated on November 18, 2022

The IRS charges penalty for non-compliance to encourage taxpayers to comply with the tax laws. The penalty for non-compliance varies depending on the gravity of the non-compliance. In some cases, it can be as high as 75 percent. Late filing of taxes, non-payment of taxes, tax fraud cases and tax evasion are some of the cases that attract IRS penalties.

IRS penalty can be forgiven partially or fully if the taxpayer concerned can prove that the non-compliance occurred because of a ‘reasonable cause’. A reasonable cause can be:

• Death in the family that deeply affected the taxpayer
• A natural disaster that affected the taxpayer directly
• Divorce or separation that led to deterioration in health, finances etc.
• A mental disorder that caused error(s)

Basically, these are unavoidable causes. If the IRS can be convinced that the reason for the non-compliance was beyond the control of the taxpayers, the IRS is likely to partially or fully forgive penalties. Many taxpayers apply for the abatement of penalty in cases of tax debt to reduce the amount of tax debt they need to pay.

Taxpayers can explore the option of getting their penalties abated if they believe it was caused because of unavoidable circumstances. Before they do so, they must consult a tax specialist.