Tax Penalty Abatement

Monday, December 1, 2014


1. Cooperating and Establishing Rapport with Tax Auditors

We have had success in abating penalties through cooperation with the tax auditor. In one case, a taxpayer admitted that he owed hundreds of thousands of dollars in meals taxes. The discovery of the liability was inevitable. With the taxpayer’s informed consent we decided to “lay out” the liability for the tax auditor. The auditor’s supervisor was grateful and, under the somewhat unusual facts of this case, permitted the taxpayer to avoid all penalties, thereby saving the taxpayer roughly $100,000.


2. Establishing Reasonable Cause

We have also had success proving reasonable cause:

  • In one case, we were also successful in having penalties removed for a taxpayer who was able to prove hospitalization for alcoholism.

  • In another case, IRS proposed a civil fraud penalty for failure to properly report income. We were able to obtain the CPA's workpapers. In those papers, the CPA’s assistant had questioned the amount of income being reported and noted a significant discrepancy. The assistant’s discrepancy was not addressed and the CPA had since died. Given this information, IRS substituted a negligence penalty and the matter was closed.

  • In a third case, the Massachusetts Department of Revenue asserted failure-to-file and failure-to-pay penalties against a Massachusetts trucking company totaling, with interest, about $600,000. We were able to abate these penalties before the Appellate Tax Board. We were able to prove that the taxpayer had followed a letter ruling that had not been withdrawn. Even the MDOR auditor thought the letter ruling was valid until he was advised otherwise by his superiors. The Massachusetts Appellate Tax Board ruled that the taxpayer had reasonably relied on the unwithdrawn letter ruling and abated the penalties in full.