Abatement of IRS Penalties
If you are faced with penalties in addition to what you owe the IRS, it is possible to abate the penalties on several grounds via a IRS Form 843.
IRS 6662 provides that a penalty of 20% will be assessed on a substantial understatement of tax (10% of the amout owed or $5000).
IRS 6662(d) provides defenses to the ‘substantial understatement’ penalties including if the taxpayer had ‘substantial authority’ or if the item was ‘disclosed’ and the taxpayer had a ‘reasonable basis’.
IRC 6664(c) provides that no penalty shall be impsed under section 6662 if there is ‘reasonable cause’ that the taxpayer acted in good faith with respect to such payment. ‘Reasonable cause is determined on a case by case basis. Reliance on the advice of a professional generally constitutes reasonable cause and good faith if the reliance was reasonable and in good faith.
For more information, consider contacting a Seattle Tax Attorney.