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How to Qualify For Tax Forgiveness

Tax forgiveness credits are available to low-income taxpayers through the Tax Forgiveness Program. This program allows them to reduce or eliminate their tax liabilities. Tax forgiveness is granted to taxpayers who complete the tax forgiveness schedule. They also need to file a PA-40 tax return. Tax forgiveness levels are determined by the income of the taxpayer as well as the dependents that the taxpayer is allowed to claim.

A dependent is a child that can be claimed as a dependent for federal income tax purposes. A single taxpayer would be eligible for 100% tax forgiveness if they had an eligibility income of $6,000. A married couple would be eligible for 100% tax forgiveness if their eligibility income was $13,000. 100 percent tax forgiveness would be available to a married couple with two children, and an eligible income of $32,000.

Taxpayers must complete a PA Schedule SP, as eligibility income is not the same as taxable income. For every $250 of income, the level of tax forgiveness drops by 10%.

For tax forgiveness eligibility, married taxpayers must use their joint income, even if filing separately.

There are many ways you could get in trouble with your taxes. These relate directly to how the IRS determines what level of forgiveness you should receive. These are the most common tax pitfalls.

• Income on tax forms that are overstated or understated
• Inadequately taking all deductions into consideration
• Bracket creep
• Unexpected income increases without taking steps to reduce tax liability
• Inadequate reporting of income from the side or contractual jobs
• Failure to report earnings from investments

These tax pitfalls have a common theme: you made more than you paid taxes on. The IRS will generally not forgive you for owing them money unless you ask forgiveness.

Most common tax pitfalls and problems

Tax forgiveness doesn't mean that your IRS will eliminate your debt. It's about you disclosing accounting errors and proving extenuating circumstances and then negotiating a settlement. Can a back tax amount ever be forgiven? Many factors can affect the answer.

Ideal Tax Solution's tax professionals often get asked this question by our clients. It's not an easy question to answer. This is why we decided to create this comprehensive guide to tax forgiveness. There are many ways to get in trouble with the IRS. The IRS will determine the amount of tax forgiveness you are eligible for.

Common tax pitfalls and problems.

1. Failure to file on time

According to the IRS, 20% of taxpayers delay filing their income tax returns until one week before the deadline. If they have any issues while filling out their forms, procrastinators may be forced to miss the deadline by waiting too long.

Although you will have more time to file for an extension, you still must pay the taxes due by the original deadline of April 15, 2020, for the tax year 2019.

The IRS may charge interest if you fail to make your payments on time.

2. Incorrect or missing information

The most common mistakes in tax filing are leaving a blank box or fat-fingering Social Security numbers.

Importing last year's returns is the best way to avoid making these mistakes.

3. Math errors

Tax forms can be confusing. Add lines 8 to 32, multiply by.356, if your AGI exceeds $50,000.

Use tax preparation software to save yourself the headache. Ideal Tax is easy to use. All you need to do is answer some simple questions and the software will fill in the required boxes on your tax return.

4. Not keeping up with the most recent tax news

The tax code is complex and Congress makes changes to it every year. The tax reform that took place at the end of 2017 was the most significant overhaul of the tax code in 30 years. This is a huge amount of change.

For important updates, make sure you visit the IRS news page and subscribe to the Ideal Tax Blog. This will ensure that you don't miss any valuable deductions or credits, or claim a tax benefit no longer available.

5. Do not keep a copy of your return

Tax experts recommend that you keep a copy for at least three consecutive years.

This is how long you can legally be audited by the IRS for gross under-reporting income.

You can view and print your Ideal Tax Return for free for seven years after filing.

6. Inaccurate account numbers

If you need your refund to be deposited directly or you are making an electronic tax payment, you should double-check your routing numbers and bank account.

Incorrect information could delay your refund or lead to penalties and interest for late payments.

7. Tax breaks not taken

Although the IRS isn’t known for being generous, there are many tax credits and exemptions that are available, especially to students and families.

Credits such as the Child Tax Credit could lower your tax bill up to $2,000 so make sure that you are eligible.

Before you decide to take the standard deduction, think twice. Particularly homeowners should list their largest deductions to determine if they are more than the standard amount.

8. The wrong tax forms are being filed

All filers can now complete one income tax form from the IRS, regardless of the tax situation. This is Form 1040. Starting in 2018, Forms 1040A & 1040EZ were removed.

Six new schedules were also introduced with the revision of Form 1040. The changes can be read here.

Schedule C is required if you have a business that needs to report profits or losses.

9. Filing under the incorrect status

The IRS has different income tax rates depending on your filing status.

For example, married couples filing jointly are entitled to double the standard deduction for single filers.

Note that married couples who file separately are subject to different rules from joint filers.

If you file separately, for example, both spouses must claim the itemized or standard deductions, but not one.

This calculator will help you determine which tax bracket you are in and calculate your 2019 tax rate.

10. Do not file at all

Even if your tax bill is not paid in full, you can still file a return with the IRS and start an installment plan.

Interest rates are very low and it is far better than not filing, which could lead to penalties or tax evasion charges.

Income on tax forms that are overstated or understated.

It is important to consider all deductions.

Bracket creep.

Unexpected income increases without taking steps to reduce tax liability

Failure to report income earned from the side or contractual jobs.

Failure to report earnings from investments

Take a closer look at these pitfalls and you will see that there is a common theme: you made more than you paid in taxes. When that happens, the IRS won't usually forgive you for any amount owed to them. You can, however, ask for forgiveness to change the outcome of your tax journey.

Let's have a closer look at forgiveness.

Are you facing a tax bill this year from the IRS? You are not the only one. According to a government study, 21% of tax filers might not have received enough taxes in 2018.

What happens if Uncle Sam owes you money but you don't have the funds to pay it? There are options. There are many tax relief options that the IRS can offer you.

You can reduce your tax liability by using tax relief. Tax relief will not eliminate your tax bill. It may also cost you more over the long term. However, it can make it easier to pay what you owe the federal government.

What is Tax Relief?

It's about setting up a payment schedule or negotiating a settlement. This is not about getting rid of your tax obligations. It's more about helping you to pay off your tax debt.

Special tax relief is sometimes available to victims of natural disasters such as wildfires or hurricanes. Disaster victims may be eligible for extensions of deadlines and may be eligible for casualty losses on federal income tax returns. Learn more about tax relief from the IRS.

Remember throughout the article that tax forgiveness does not mean the IRS going into their computer and pressing a few keys to eliminate your debt. It is about disclosing accounting errors and proving extenuating circumstances to negotiate a settlement for the amount owed.

These are some factors that tax debt forgiveness is dependent on income

Be sure to understand that all income must be disclosed, regardless of whether it is taxable, side work, or contract. This is because the IRS will use all of these numbers to determine your ability and financial resources to pay taxes. If they find that you are unable to pay taxes, they will consider that.

Expenses

This is the second part of how the IRS decides your ability to repay your debt. The IRS uses a set of national standards to determine how much income can be taken out. These national standards include:

Health care

Transport

Items for the home, such as food and clothing.

Other living expenses

Your living expenses are usually calculated according to the local standards. There are exceptions to this rule, however, where you can provide enough documentation.

Outcome

The IRS also determines your income taxes in the same manner. They will review all information about your case. They will consider your income and subtract your expense allowances. Finally, they will assess any mitigating factors that could affect your ability to repay your tax debt. The IRS generally follows a six-year repayment schedule. If your offer of compromise is acceptable, it could be accepted.

Other Eligibility Requirements

You may also be eligible for partial or full forgiveness of tax debt. The best way to get total forgiveness is to show that your allowable expenses exceed your income so that regular tax payments are not a financial hardship. This can be a difficult task.

Tax exemptions, forgiveness, and allowances can be different.

All terms are often used in tax time, including forgiveness, allowances, and exemptions. It's important to know that these terms can all be used to reduce your tax liability. They are not the same thing. You may wonder how forgiveness and exemptions differ from one another. Let's take a moment to discuss this with you.

What are allowances?

You're likely to have seen the box on your W-4 where you need to choose how many allowances to claim if you've ever filed taxes. If you're anything like most people, it's not easy to understand the calculations. You may have heard that more allowances mean less tax.

Allowances are withholdings you claim on your W-4. They can reduce your weekly paycheck, but can also cause headaches when it is time to file your taxes at year's end.

What are exceptions?

Exemptions can be a type of deduction you can claim on your tax returns. You can choose to exempt yourself or your dependents. They are designed to help you balance your taxable income with the amount that you withhold from your paycheck each pay period.

Some people do not claim allowances on their W-4s. This allows the IRS to collect more taxes than they owe in a given year. They will be able to claim more of their exemptions on Form 1040.

What forms do I need to file to apply for tax forgiveness?

It might seem unfair that a debt you have successfully negotiated away or canceled comes back to haunt your taxable income. The IRS considers canceled debt income, even though you did not pay for it.

You don't pay taxes on the money you borrow. However, you must repay the contract. The contract is gone and the money is yours. You received the money as a gift and it is now taxable income.

Form 1099-C

The IRS states that almost any debt you have, whether it is forgiven, canceled, or dismissed, becomes taxable income. The lender who forgives the debt will send you a Form 1099C, "Cancellation of Debt." A Form 1099-C is typically issued by a lender that forgives the debt. It can be used to cancel a loan, modify a loan, repossession, foreclosure, return the property to a lender, or abandon, or modification of your principal residence.

It can be difficult to know which forms to complete and submit to the IRS to receive tax debt forgiveness. You probably don't understand the purpose of all the numbers and letters that are flying around.

We have listed a few essential forms that you should know, especially if your goal is to get tax debt forgiveness.

Form 1040

Your primary tax form is the 1040 form. All of the numbers on the 1040 form are directly from the Form W-2 you receive from work. Each line is marked with a number and instructions for calculation. You should be cautious with this form as you could have serious tax problems if you under- or overreport your income.

W-4

When you start a new job, Form W-4 must be completed. This form is essential because you can claim allowances that could increase your salary. You should make sure you don't get more tax exemptions than allowances. Otherwise, you might end up owing more.

Form 656 Booklet

To apply for an Offer in Compromise, you will need to complete the Form 656 Booklet. The booklet contains all the information needed to complete the application. Before you submit Form 656, you should have a tax professional like the ones at Ideal Tax Solution review it. The application is extremely detailed and you will need all documentation to support any claims made in it. For individuals, the booklet contains Form 433 A, Form 433 B, and Form 656, which are the Offer in Compromise applications.

Although it is not a pleasant experience to be liable to the IRS for late taxes, you don't have to worry. Many forgiveness and assistance programs can help you get rid of the tax debt you have. You should understand that you don't want to avoid the IRS as they can garnish your wages and withhold future tax refunds.

Are you ready for the IRS to forgive you?

You may be wondering if IRS debt forgiveness even exists. It sounds too good to be true, doesn’t it? The short answer is that you can get IRS tax debt forgiveness regardless of how much or how long you owe in delinquent taxes.

How Can I Get My Taxes Forgiven?

It can seem impossible to see the light at the end when you are trying to get out of a mountain of back taxes. The truth is that there is help available, and it is coming from the IRS. Many people who are dealing with tax debt and the consequences it has on their lives believe they won't get the help they need. The IRS will work with you regardless of how old your tax debt may be.

There are many misconceptions about tax forgiveness and how to apply it. Some programs can be used in cases where you are not eligible, such as the innocent spouse provisions. The IRS fresh start program allows for tax forgiveness credits to be applied to your earned income to reduce the amount you owe each year. In some cases, you may even be able to reduce your owing amount to zero.

To determine which forgiveness plan is right for you, we will consider your financial situation. These are the steps to an IRS debt forgiveness program:

Acceptance to the right program after applying

Consent to keep current with all tax returns going ahead

Accepting all terms and conditions set forth by the IRS regarding totals due, penalty abatement, and payment terms

Accepting that the IRS periodically reassesses your financial situation

Payment plan or a lump-sum payment to pay off full or amended debts

Based on your financial situation, and your tax debt, the IRS will calculate how much you must pay. The first step in determining if you are eligible is to apply.

Who is eligible for IRS tax debt forgiveness?

What Do I Need to Qualify for IRS Tax Debt Forgiveness?

Without consulting a tax professional, it can be hard to determine if you are eligible for debt forgiveness. If you haven't paid your entire tax bill because of financial hardship, the IRS may be willing to agree with you. These are the key factors that the IRS considers:

Tax balances below $50,000

A single filer income cap of $100,000

For married couples filing jointly, there is an income limit of $200,000

Self-employed people will see a 25 percent drop in their net income

Nearly all applicants will be approved for an IRS repayment agreement. Repayment may not be the best choice for you. An Offer in Compromise, or currently non collectible status may allow you to pay less overall. Both of these options will require you to provide financial information to IRS. You don't want to present any information that could contradict your claim that your tax bill is unpayable.

What Is Tax Forgiveness?

The 1974 Pennsylvania General Assembly decided that some citizens of the Commonwealth needed special tax provisions because they were poor. The General Assembly decided that imposing a personal income tax on these individuals would make it impossible for them and their families to live comfortably. Because poverty is a relative concept that considers actual income as well as the dependents of such income, the General Assembly made special tax provisions to help eligible people ease their economic burden.

Tax forgiveness is a credit that allows taxpayers who are eligible to lower their Pennsylvania personal income tax liability. Tax forgiveness:

• Reduces tax liability
• Some taxpayers are forgiven of their liabilities, even if they haven't paid their Pennsylvania personal income taxes.

If you are reading this article, you will find out if your IRS can forgive your taxes. We have both good news and bad news.

There is no one tax debt forgiveness program. The good news is that there are many IRS forgiveness programs available to help you achieve tax forgiveness. Below we'll discuss several programs in more detail. But first, it's important to remember that tax debt forgiveness doesn't work for everyone. It is important to take the time to find the program that works best for your situation and financial situation.

Ideal Tax Solution's tax experts can help you find the best forgiveness options for your situation and help you resolve your tax problems.

Claimant

Eligible Claimant

A person is eligible to claim:

• Who is subject to the Pennsylvania personal tax on income?
• Except as stated in Part 2 Section C, who is not a dependent for Internal Revenue Code (IRC), SS 151? of the 1986 Internal Revenue Code (IRC),
• The income of a poor person does not exceed certain eligibility levels.
• Who is not eligible for a federal, local, or state prison? A patient in a state or federal hospital or a student in a residential school for half a year or more?

How Does Tax Forgiveness Work?

Credits against back taxes are the best way to get tax forgiveness. These credits can help reduce your tax liability. You must ensure that the IRS considers your taxable income and non-taxable income as well as your financial situation and family size.

It's important to understand the process of tax forgiveness as we go along this article. It's not about forgiving your late taxes. They disappear in smoke and are never seen again. Credits against back taxes are a better way to get rid of tax debt. These credits can be used to reduce your tax liability, or even eliminate it. To determine if you are eligible, the IRS considers the amount of your taxable income and non-taxable income. It also considers the size of your family and your financial situation.

What are some of the tax forgiveness programs?

There are many relief options that you have. Your eligibility depends on your circumstances. We'll be discussing a few options for forgiveness and relief in detail in this article.

Installment Agreements

An installment contract is performed over several performances, such as payment, delivery of goods, or performances of service. An installment contract can specify that one or both of the parties must perform each installment. A contract could say that the buyer would pay a lump amount for goods over some time. Or that the seller would deliver the products and then receive payment.

If you are unable to pay the full amount, these agreements allow you to reduce your tax debt by paying it off in smaller amounts. The most common repayment term is 72 months. This option is not available to those who owe more than $50,000 in taxes, interest, and penalties.

Innocent Spouse Relief

The Internal Revenue Service (IRS), which offers relief from joint and multiple liabilities arising out of joint tax returns, has the innocent spouse rule as one of the three types. This rule allows the applicant to be exempted from paying any tax, interest, or penalties due to erroneous information reported by their spouse. Any unreported gross income, incorrect deductions, credit, or property basis claimed or received by the spouse are all considered erroneous. A total relief is available to the applicant if they knew nothing or had any reason to know about the erroneous items, or partial relief if the applicant only knew about a part of the erroneous items.

The IRS explains that an applicant for innocent spouse relief must satisfy three requirements. First, the applicant must have filed a joint tax return in which there is an understatement tax due to erroneous items that were not attributable to their spouse. Second, the applicant must not have known or had any reason to know that the tax was understated at the time they signed it. Third, the applicant cannot be held liable for the spouse's understatement tax given their facts and circumstances.

The spouse and the applicant must not have been involved in fraudulent transfers of property. If the applicant meets these requirements, they must file Form 857 with the IRS within two years of the IRS' first attempt to collect the higher tax. Exceptions may be granted for equitable relief.

This program will allow you to avoid penalties resulting from tax fraud or inaccuracies on your spouse's tax returns. This is a very specialized relief program.

Offer In Compromise

These numbers will be taken into consideration by the IRS and you may be eligible to file an Offer in Compromise. This is the closest the IRS can offer to tax forgiveness, except in very specific situations. It allows you to negotiate with the IRS the amount that you can pay.

This is a settlement program that allows you to pay much less than what you owe the IRS.

Not Collectible

Currently Not Collectible (or "Currently Not Collectible") is a relief program designed to provide a fresh start for taxpayers who can prove they can't pay their tax debt.

It is not an automatic process to qualify for tax debt forgiveness. Just because you meet the requirements does not mean that you will be granted forgiveness.

Reasons the IRS will remove penalties

If certain criteria are met, the IRS can grant a first-time penalty waiver (FTA) waiver to taxpayers who fail to file, fail to pay, or fail-to deposit penalties. This procedure rewards taxpayers who have a clean compliance record. Everyone is entitled to one error.

FTA may be requested by individuals and businesses for failure to file, failure to pay, or failure to deposit penalties. FTA does not apply to any other penalties, such as the accuracy penalty, returns with an event-based filing requirement, Forms 706 and 709, or information reporting that relies on other filings.

How Does Tax Forgiveness Work?

Refer to IRM20.1.1.3.6, Reasonable Cause Assistant (RCA), and IRM20.1.1.3.3.2.1 First Abate (FTA),.

The following criteria are required for taxpayers to be eligible for an FTA waiver:

Compliance: You must have filed all required returns (or extended the deadline for filing them) and you can't have any outstanding requests for returns from the IRS.

Payment compliance - Must have paid all taxes due (can be made in installments if they are current).

Clear penalty history: There have been no previous penalties (other than a possible tax penalty) in the three preceding years.

Please note that IRM 20.1.1.3, Guidelines for Relief from Penalties, penalties relief under administrative Waivers, including FTA, must be taken into consideration and applied before reasonable cause.

Phone to request penalty abatement

If the tax practitioner is not being assigned to a particular compliance unit (examination or collection), he or she may call the IRS Practitioner Priority Service line (PPS) at 866.860.4259 and request FTA. To request FTA, the practitioner should contact the unit that is handling the case. To request penalty abatement over the telephone, a tax practitioner will need to have the power of attorney authorization (Form 2848 - Power of Attorney and Declaration Of Representative). The IRS representative who answers the call should have the ability to pull up the client's accounts, determine whether the FTA criteria are satisfied, and apply for the waiver. A letter would be sent to the taxpayer indicating that penalties have been removed based on FTA criteria. It is recommended that the taxpayer follow up with the IRS if the letter does not arrive within 30 days of the date of the call.

Tip Often, calling the IRS to request FTA is the best way to do so. Many penalties can be quickly removed during a phone call. Sometimes, however, the IRS may not be able to reduce the penalty amount over the telephone. To request FTA, the tax practitioner can write to the IRS. It is also advisable to send a letter to IRS to confirm that the IRS has abated penalties by phone. This letter should include the date, agent's name, and identification number.

Send a letter or mail to request a penalty reduction

A tax practitioner can request FTA for his client by writing to the IRS instead of calling the IRS. All relevant information should be included in the request, including taxpayer name, identification number, and tax year/period. It is important to clearly state that the client meets FTA criteria. Attach transcripts from clients that can prove compliance with filing/payment requirements and a clean history of penalties (Form 2848). All pages sent to IRS must include page numbers, the taxpayer's name, and the last four digits of their identification number.

How To get tax relief?

FTA is only applicable to one tax year/period. FTA does not apply to requests for penalty relief for multiple tax years/periods. If the FTA criteria are met, penalty relief will only be granted for the first tax year/period. All subsequent tax years/periods are subject to penalty relief based on other provisions such as reasonable cause criteria.

If the IRS has not assessed the penalty, then a client may file a late return and fail-to-file or failure-to-pay penalties will apply. The taxpayer can attach a penalty request nonassertion to the late-filed returns.

To request a refund, a client who has already paid the penalty may file Form 843 (Claim for Refund or Request for Abatement) to request a refund.

Consider appealing to the Appeals if the IRS refuses to grant penalty relief. The appeals may reach a different conclusion based on other factors such as the risks of litigation.

Although each case is unique, the CPA (client advocate), cannot request abatement for the client. With a simple telephone call or letter to IRS, clients can save thousands on penalties and rely on their tax professional for assistance.

The IRS will owe any amount. What makes it worse is that they can add penalties to the amount due. The IRS will slap you on the wrist for not paying the full amount due. They want to encourage you to use the "stick" approach rather than the "carrot".

Would you believe that your tax penalties could be wiped out? An IRS tax abatement can be applied for. It is not easy, so I cannot guarantee it will work. However, it is worth the effort. Some of my clients have experienced great success, so why not try it?

To be eligible for penalty abatement, the IRS has strict guidelines that taxpayers must follow. Many reasons could be considered for penalty abatement. These include honest mistakes, serious illness, and undue hardship. You should have documentation to support your claim.

Continue reading to find out more about the types of situations that the IRS will accept for a penalty reduction and to see if you fall within any of these categories. I can help you determine if you have a case.

WHY DOES THE IRS ADD PENALTIES TO PERSONS?

As we have already stated, the purpose (or imposing) a penalty was to encourage voluntary compliance. "Voluntary compliance is when taxpayers comply with the law without compulsion, threat or retribution" (IRS.gov "20.1.1.2.1 Encouraging voluntary Compliance," 8/14/2013). When a taxpayer makes good faith efforts to comply with all tax obligations ("Encouraging Voluntary Compliance"), he or she supports the principles of the Internal Revenue Code.

In this situation, the taxpayer is considered compliant if they reply to tax rules written material and complete all forms related to their tax liability. The IRS administers a system that penalizes taxpayers for not complying with tax rules ("Encouraging Voluntary Compliance") to encourage compliance. To encourage compliance in the future, the IRS educates taxpayers.

REASONABLE CAUSE

The IRS will waive or abate any applicable penalty if a taxpayer explains. "Part 20" states that if the explanation applies to any (or all) of the penalties but not all penalties, the IRS waives or abates the relevant penalty.

After the assessment of the penalty has been made, relief may be granted. The appropriate penalty portion is then reduced. There are specific guidelines for adjustments made due to reasonable cause.

Section 20.1.1.3.2 defines reasonable reason in the context of a taxpayer not complying with their tax obligations. The taxpayer is granted relief if the taxpayer "exercised normal business care and prudence when determining their tax obligations." (IRS.gov "20.1.1.3.2 Reasonable Cause," 8/14/2013).

These circumstances are known as "Reasonable Cause", and relief is often granted. The penalty sections of the Internal Revenue Code define reasonable cause as evidence that the taxpayer "acted in good faith" or that the taxpayer's failure to comply with the law was not due to negligence ("Reasonable Cause”).

A taxpayer can have reasonable cause if they have shown that their conduct is justifiable for non-assertion of or abatement. Each case is judged separately; the judgments are made based on the presented evidence, facts, and circumstances.

The specific criterion used by the IRS to determine taxpayers' guilt is used when evaluating the merits. The IRS may ask a question about the taxpayer's attempts to comply with the law after all facts have changed.

This question is one of five that the IRS uses to assess the taxpayer's decision-making ability to determine if "circumstances prohibited the taxpayer from filing a return, paying tax, or otherwise complying with the law" ("Reasonable cause").

The Internal Revenue Manual describes how reasonable cause and other relief provisions can be applied in the context of tax administration. These provisions must be used consistently and should comply with the IRC, Treasury Regulations(Treas) requirements. Regs. Regs.

Not all penalties are eligible for reasonable cause relief. A reasonable cause provision might only apply to a particular section of the Internal Revenue Code. Acceptable explanations do not have to be limited to the sections of the Internal Revenue Manual.

Penalty relief is usually considered when the facts and circumstances reveal that the taxpayer exercised ordinary commercial care and prudence, even though it was not possible to comply within a specified time frame. Once the facts and circumstances show that the taxpayer willfully failed to comply with tax obligations, reasonable cause ceases ("Reasonable Cause")

TAX Penalty ABATEMENTS-REASONABLE CAUSE FACTORS

Many of my clients get upset and take it personally when they are assessed a tax penalty by the IRS.

A balance owing to the IRS can be significantly increased by tax penalties. This is in addition to interest. It can make a small amount seem much bigger. The IRS uses a strict approach to tax penalties. They will often assess penalties without considering the underlying circumstances.

A list of reasons

For some taxpayers, the IRS may be able to reduce their tax penalty.

It is difficult to accept tax penalty abatements as the IRS doesn't like to release them without a justifiable reason. The Internal Revenue Manual has a list of "reasonable causes" that taxpayers can use to challenge their tax penalty.

The IRS defines a tax penalty exemption as a taxpayer who exercises ordinary care and prudential but fails to follow their obligations. [1] I have provided a list of reasonable causes exceptions to tax penalties for the benefit of my readers.

This is not a complete list of circumstances that a taxpayer could use to receive a tax penalty reduction. These are the situations that I believe the IRS will accept, based on the Internal Revenue Manual.

Any reason or justification other than these factors will prove more difficult for the IRS to justify the reasonable cause.

Tax penalty abatement element 1 - Ordinary business management and prudence. (IRM 20.1.1.3.2.2)

It is possible to show ordinary business care and prudence by proving that the taxpayer tried their best to comply with their tax obligations but due to circumstances beyond their control were not able to.

When determining whether to reduce a tax penalty due to reasonable cause, the IRS usually considers four factors.

First, the taxpayer must have compelling reasons to seek the penalty abatement. All explanations must be compatible with the dates and circumstances upon which the penalties were based.

The IRS also looks at the taxpayer's compliance history. While it is not likely that taxpayers who have had past issues with compliance will be denied tax penalty relief; however, bad behavior can sometimes impact the taxpayer's financial situation.

Third, the time it took for the taxpayer's compliance must be reasonable given the circumstances

The circumstances that lead to tax penalty abatement must not be within the control of the taxpayer.

The IRS will carefully examine all these factors and may request supporting documentation from taxpayers to verify the sequence of events claimed.

Tax penalty abatement element 2 - Death or serious illness or unavoidable absence (IRM 20.1.1.3.2.2.1).

A tax penalty reduction from the IRS is possible if there are any death, serious illness, or other serious medical condition. This applies to both individual taxpayers and their families, as well as corporate taxpayers if the sole person responsible for tax compliance is absent.

The IRS will look into the steps taken by a corporation to comply with the condition. While it's not easy to share personal information with the government, it's important to document the circumstances that led to the non-compliance.

This includes details and dates related to:

The severity of the condition

Relationship between the taxpayer and the person with the condition (if it is not the taxpayer).

Additional information that may be of use to the IRS in determining your case

Remember that eventually, a human being will review the facts and circumstances surrounding the tax penalty abatement.

It is perfectly acceptable to ask for sympathy from the IRS when you request tax penalty abatement.

Bottom of Form

Tax penalty abatement element 3 - Ignorance law (IRM 20.1.1.3.2.2.6).[1]

This factor can be used as a reasonable cause argument but it is harder to use. However, ignorance of the law may still be a factor the IRS might consider when determining whether a tax penalty abatement is valid.

Some taxpayers may not know that they must file and pay certain tax obligations due to their past or education. If the taxpayer can comply with the law, they are not subject to penalization for ignorance.

The IRS will consider the educational history of the taxpayer, whether they have been subject to this tax before, and whether they have ever been penalized (the kiss of death to this argument). If there have been recent changes to the law, any reporting requirements, or forms that the taxpayer wouldn't reasonably expect to know about, they will also look at the taxpayer's past education.

The IRS believes that ignorance of the law is not a good thing. They believe that any taxpayer who fails to make a reasonable effort should understand the law. If you want to reduce your tax penalty, it is better to rely on other factors than just this one.

However, ignorance of the law is not necessarily a weakness. You can combine it with other factors to help you position.

Tax penalty abatement element 4 - Forgetfulness and mistakes (IRM20.1.1.3.2.2.7).[2]

Forgetfulness

My professional opinion is that you should not attempt to abate a tax penalty based on forgetfulness. It's better to not mention this in your argument for a penalty reduction than to the IRS.

The IRS does not consider forgetfulness a sign that you did not exercise reasonable care and prudence to comply with your tax obligations. In the IRM, the IRS states that relying on someone else to fulfill your obligations or provide oversight for you is not sufficient to establish reasonable cause.

Mistakes

While mistakes are less likely to be deemed suspicious, the IRS quickly points out that making a mistake does not indicate that you have been exercising ordinary care. These factors are not so important. Instead, you should forget about them and pursue other avenues to argue for your tax penalty reduction.

Tax penalty abatement factor 5. - Unable records to be obtained (IRM 20.1.1.3.2.2.3).[3]

This is a double-edged weapon, but I have personally seen several tax penalty abatements that were accepted because the taxpayer couldn't obtain the records necessary to comply with their tax obligations.

It is essentially about:

1. How reasonable was it that the records were not available?
2. The taxpayer had control over the records.

The IRS sees filing incorrect information as worse than not filing.

It is a sign of diligence that the taxpayer waits until they have all the information necessary to file a complete and accurate tax return. Your argument will depend on how long it took you to discover the records and the efforts you made in rectifying the problem.

This argument can be used to abate tax penalties, but it is dependent on the facts.

Tax penalty abatement element 6 - Undue hardship IRM 20.1.1.3.3.3)

The IRS can also use undue hardship to reduce a tax penalty. Undue hardship is defined by the IRS as " more than an inconvenience for the taxpayer." [1]"

This means that the taxpayer must document and show serious financial or personal hardship to reduce tax penalties as a result. This is not an easy feat, even for a professional.

The IRS will not consider any circumstances severe enough to prevent payment of taxes in very few cases.

1. Personal health is at grave risk (cannot pay for medical bills).
2. Loss of your primary residence (cannot afford rent) or to the detriment of minor children or dependents. (Cannot pay their food or housing costs).

The IRS will not consider any other factors in determining if you have an undue hardship.

Another important point to remember is that in cases where items are tied to failure to pay, undue hardship generally qualifies as an appropriate justification. The IRS does not generally excuse penalties for taxpayers who fail to file due to undue hardship. [2]

According to the IRS financial hardships generally don't affect taxpayers' ability to file. However, I have personally been successful in releasing any penalties that may be associated with failure to file due to economic hardship.

What is most important to me is the context of the taxpayer's request. No matter what penalties are being applied, good facts will prevail over most IRS objections.

Tax penalty abatement element 7 - Bad advice IRM 20.1.1.3.3.4 and errors made by IRS IRM 20.1.1.3.4

Although I won't say bad advice is the best way to get penalties reduced, bad advice from the IRS or tax practitioners is one of the most persuasive reasons to reduce tax penalties.

Tax practitioners often use this tactic to reduce penalties in other areas such as audits. The IRS will look for ordinary care and prudence when granting tax penalty abatement.

Logically speaking, if you believe the IRS, they should be held responsible for any penalties.

Relying on a tax adviser is, however, an indication that you have admitted ignorance about certain tax issues and are putting your faith in someone who has been trained in these matters.

Relying on a tax adviser is only reasonable if the taxpayer is negligent (negligence). The IRS can also prove financial sophistication, which would indicate that the taxpayer should not have trusted them.

This tactic is generally a good one to use, given the facts. In most cases, the IRS will correct any mistakes they make without too much resistance from the taxpayer.

What happens if you combine a few poor financial choices with unemployment, medical costs, and other monthly expenses. The result is a large tax bill you cannot pay.

But you can't afford to pay your taxes. This sounds familiar. You're not the only one.

Internal Revenue Service (IRS), which collected more than $1.8 Billion from delinquent returns and assessed more than $33.8 million in additional taxes for returns that were not filed in time in 2019, has more than 33.8 billion.

However, you don't want your name to be included in that statistic. You can't avoid taxes in exceptional circumstances. This will only make it worse. Instead of letting your tax bill grow, you can find a way that will reduce your tax liability by using a rarely used tactic.

An offer in compromise (OIC) could be the answer you are looking for. This IRS tax relief program is one of the most underused and misunderstood.

Here's all you need to know about compromise offers, who is eligible, how to apply and how it can help you get a fresh start without tax debt.

What's an IRS Offer in Compromise OIC?

An offer in compromise (or settlement) is an agreement between you or the IRS. It allows you to offer a lower amount than your full tax liability. You can be accepted into a partnership agreement. The agreed payments are made, and your tax balance is erased.

The IRS accepted 17,890 of 54,225 offers in compromise requests in 2019 totaling $289.4 million.

This means that you could get a 33% acceptance rate, or 67% rejection rate, depending on whether you are glass-half-full or half empty.

How do I apply for a compromise offer?

The IRS follows a strict process when considering and appraising compromise offers. Here's how it works:

• First, complete and include Form 656, Offer In Compromise ( download).
• If applicable, complete and sign Form 433A (OIC), Collection Information Statement for Self-Employed Individuals and Wage Earners.
• If you are the owner of a business, fill out and sign Form 433B (OIC), Download, Collection Information Statement for Business.
• If you do not meet the Low-Income Guidelines, pay the $205 application fee.
• The payment option that you choose will determine how much of the initial offer payment you deposit. This requirement may be waived if you meet the Low-Income Guidelines.

The IRS won't consider your offer of compromise if the completed and signed forms are not provided.

How to simplify the Offer in Compromise

Like any other creditor, the IRS wants their money fast. Getting some is better than none, especially if your income forecast is uncertain.

Taxpayers who are struggling to pay their taxes may abandon filing their annual returns and give up. A reasonable payment plan can give otherwise productive taxpayers a fresh start and improve the user experience.

They also have only 10 years to collect taxes after a return has been filed. Research shows that the likelihood of a tax debt being paid is lower the longer it remains on the books.

The IRS can garnish your wages, levy bank accounts, or place a lien on your property. Some assets are not allowed. To discuss an installment plan that is based on your ability and to make sure it is accepted, consults a tax professional.

An offer in compromise is a good way to get some revenue from a taxpayer who doesn't have a lot of assets or a large income.

They will not seize your property even if you make an offer in compromise. The lens is not subject to the same restrictions.

Is there an application fee for an OIC payment plan by the IRS?

The IRS charges $205 for application fees (as of February 2021). The fee can be waived if the applicant meets the criteria for Low-Income Certification.

Two types of compromise offers

Based on your payment method, there are two types of compromise offers.

Lump-sum offer

Taxpayers must pay the agreed amount within five-month of approval for the "lump sum" compromise offer. The IRS will consider the offer if taxpayers make a 20% downpayment when they submit it.

Warning! The 20% deposit is non-refundable. You might want to consider whether they will accept the offer. Consult with a tax professional.

Periodic Payment Offer

The "periodic payments" offered in the compromise must not be made after six to 24 months. Include the first installment payment with your application.

What forms are you required to complete?

To determine eligibility, the IRS requires that applicants complete Form 656 as well as Form 433 A (Form 433 B for Businesses)

You will need to give detailed information about your income sources, bank accounts, investments, living expenses, and bank accounts. These forms can be costly if you make mistakes.

Before providing financial information, hire the services of an experienced tax relief company.

How a Back Tax Assistance Company Can Help You with the IRS Fresh Start Program?

Three reasons could make you eligible for an OIC.

You cannot afford the entire amount. The IRS acknowledges that you do not have enough income or assets to pay all of your tax debt by the end of the statute of limits (10 years).

Economic hardship. It is possible to prove that you are in financial hardship by paying the entire amount.

Doubt about what you owe.

It is possible to wonder why someone would pay part of their tax debt if they are unsure if they owe it at all or if the amount is correct.

It would be better to appeal the decision to court if you feel it is unfair or inequitable. Sometimes, it is the best thing to go to court. The IRS can win 80% of its cases. An offer in compromise is not an option if your debt has been determined by a final court ruling.

In other words, paying a portion of your tax bill, even if you disagree with it, can be less expensive and more time-consuming than appearing before a judge. Talk to an experienced tax attorney enrolled agent, or CPA before making a decision. All of the tax relief companies listed below have tax attorneys or enrolled agents.

Compare All Tax Relief Companies

Eligible taxpayers should also:

• All required tax returns must be filed
• Keep up-to-date on estimated tax payments for self-employed as well as business owners
• Keep up-to-date on federal tax deposits for businesses with employees
• Not at the moment in an open bankruptcy proceeding.

How does one determine eligibility for an OIC Application?

The IRS first determines if taxpayers have the financial means to pay off their total tax debt. The IRS has an online tool that calculates its reasonable collection potential (RCP) to do this.

The IRS will accept an offer if the RCP is lower than the total tax debt, and the taxpayer meets any other requirements for an OIC.

The IRS also determines if the offer in compromise is the maximum amount a taxpayer can afford. Compensation is the basis of this calculation. It is important to understand policies, procedures, as well as certification guidelines.

The IRS requires that applicants not participate in open bankruptcy proceedings.

A tax relief expert can help you determine the lowest amount that the government will accept, and then negotiate an installment agreement to avoid your offer being rejected.

What amount should I offer as a compromise to the IRS?

The IRS will not settle for less than what you can afford. It is difficult to know how much you can afford. It all depends on your income, your family size, your location, your health, and how healthy you are. The big question is: How does the IRS determine how much you can afford? And what payment plan is best?

How does IRS determine how much you can afford?

The IRS uses a formula to calculate your reasonable collection potential (RCP). It is also called "net realizable value." It can vary depending on the assets you have, whether you own business assets, the type or offer in compromise that you apply for and payment options.

This calculation should be left to an expert in tax relief, but here is a simplified version to give you an idea.

IRS reasonable collection formula

RCP = Reasonable collection opportunity.

QSV = Quick Sale Value or 80% of the Asset's Fair Market Value.

MDI = Monthly Disposable Income (after you have paid for your living expenses).

Lump-sum

The RCP, if you pay the bills within the due date, is the quick sale price of your assets (property and jewelry, etc.). Add your monthly disposable income to 12.

RCP = QSV+ (MDI x 12).

Periodic payments

The formula for periodic payment offers is where the OIC can be repaid within 6 to 24 months.
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RCP = QSV+ (MDI x24)

What are the most common IRS penalties?

Most penalties are not abated by the IRS. Why? It could be because people don’t know how to ask for penalty relief or that it may seem too difficult. Here are some reasons why it's worth it.

To encourage compliance, the IRS uses penalties a lot. The IRS assesses millions of penalties each year totaling billions of dollars. The IRS offers several options for those who are eligible to have penalties removed or abated.

For not filing and not paying taxes, the IRS has the most severe penalties

The Internal Revenue Code contains almost 150 penalties. However, there are a few more common penalties that make up 74%. These are the most popular penalties:

• Penalty for failure to pay penalty - 56% on all penalties if you fail to pay taxes on time
• Failure to File Penalty - 14% of all penalties imposed if you fail to file a return in time
• Failure to Deposit Penalty - 4% of all penalties imposed on businesses that fail to pay their employment taxes on time or incorrectly

Late-filing penalties for S corporations and partnerships are a common nuisance penalty. Taxpayers often contest the estimated tax penalty by offering an exception when filing their tax returns.

What Is Tax Forgiveness?

For the most common penalty, you can ask for penalty abatement using these four reasons:

1. Statutory exception: Proving a specific, authoritative exclusion to the penalty

Statutory exemptions are rare and can be explained to the IRS easily, usually at tax filing. Examples of such exceptions are combat zone relief and disaster relief.

2. IRS error: Documenting the fact that the error resulted from IRS advice

This penalty relief argument is rarely used and is often unsuccessful. The IRS does not routinely provide tax advice in writing. You must document any erroneous IRS advice that you have relied upon. Although the Internal Revenue Manual says that penalty relief is available for errors in oral advice, it is very rare.

3. Reasonable cause is a reason you can't comply with the request based on your facts.

People often argue that they were guided incorrectly by their tax software or tax professionals. This argument is reasonable.

You must show that you used ordinary business care and prudence but were unable to comply to present a reasonable reason for late payment and filing. Also, you must show that your non-compliance wasn't due to willful neglect.

Most people aren't successful in presenting reasonable cause arguments to the IRS, particularly in court. The majority of penalty abatement decisions never reach court. The IRS makes most administrative decisions.

You must ensure that the IRS takes into account all facts and circumstances to be successful with reasonable cause determinations. You should appeal any penalty abatement rejection letter that does not address all of your facts and arguments.

4. Administrative waiver: Taking advantage of a provision that facilitates tax administration

Under certain conditions, the IRS may grant administrative relief from a penalty. First-time penalty abatement (FTA) is the most common administrative waiver.

FTA can be used for failure to file, failure to pay, or failure to deposit penalties in one tax period if you have a clean compliance record for the last three years. FTA can be used to abate penalties on Form 1040 and Form 1120 as well as payroll and pass-through entities.

FTA is the easiest option for penalty relief. It is possible to request FTA by calling the number listed on your IRS notice. If applicable, your tax professional can also call the designated tax pro hotline and compliance unit to request FTA for any penal amount.

Dear IRS, please no penalties! The IRS is asking for your forgiveness. The defense that a tax position was founded on reasonable cause and that the taxpayer acted in good faith is one of the most important but often misunderstood. These words may seem simple and easy to understand, but they are terms that are art. The IRS might not agree with a taxpayer who believes that he or she followed them as a matter of common sense. This article does not address the IRS's first-time penalty abatement program.

The amount of the penalty is one way that the IRS will determine how to evaluate defense. Some penalty defenses, in addition to reasonable cause, may also include other concepts such as the absence of willful neglect. Does that not prove a negative? It is.

What are some of the tax relief programs available?

This should not come as a surprise. Of course, the IRS does. The IRS does not. Taxpayers bear the burden of supporting their reasonable cause. All taxpayers must use ordinary business care and prudence when reporting their correct tax liability. Remember that all tax returns must be signed under penalty of perjury.

The IRS applies a facts-and-circumstances test on a case-by-case basis to determine whether a taxpayer meets the reasonable cause and good-faith exception. These can result in inconsistent or subjective results. Because the Sec. The Sec. 6662 accuracy-related sanctions, which are typically 20% of the amount at risk

Penalties for civil fraud under Sec. 6663. What is the civil fraud penalty? It is a staggering 75%. If a tax deduction is not correct and amounts to $10,000, then add $7,500 if the IRS claims it was a fraud. Although fraud penalties aren't often brought to light, it is not unreasonable to assume that they can be severe. This makes it possible for taxpayers to avoid them, even though they may end up having to pay all of the tax and interest.

There's more. The IRS may also impose other penalties, including penalties for failing to file a tax return and failing to pay under Sec. 6651; (2) for filing an incorrect claim for refund or credit under Sec. 6676; (3) failure to file Form 1099 and other information reporting returns as required by Sec. 6721; and (4) the understatement by a tax return preparer of a taxpayer's responsibility under Sec. 6694.

The Code is full of penalties. It is possible to cut through all the details by saying that taxpayers always want to claim that they acted reasonably and with cause when claiming every item on their tax return in good faith. But when does a taxpayer not feel the need to argue reasonable cause?

You could have multiple situations. An underpayment of tax due to transactions that lack economic substance as defined under Sec. 6662(b)(6). The same applies to penalties for gross-valuation excess from claiming charitable contribution deductions for properties. However, all is not lost. There can still be penalty relief, but the rules and procedures are more complicated. These two penalties can be applied to highly aggressive transactions, but they do not apply in most cases or for most people.

Reporting on tax returns is key

The IRS states that the most important factor in determining whether taxpayers have reasonable cause and acted in good faith is the taxpayer's efforts to report their correct tax liability. While a taxpayer might be trying to accurately report the correct amount, it is not always possible. But, reasonable cause is not dependent on the legal authority supporting the position on the return. This is in contrast to the taxpayer defense of a "reasonable base".

It depends on the actions of the taxpayer. Let's say, for example, that the taxpayer reported the incorrect amount on a Form 1099 but didn’t know that the Form 1099 was inaccurate. The audit revealed that Form 1099 reported less information than the taxpayer received. This could happen to anyone. People rely on Form1099 data a lot. Therefore, the reasonable cause could apply if the taxpayer reports only the amount that it believes is correct.

What if the taxpayer was paid $300,000. But the Form 1099 stated $300? If the Form 1099 incorrectly stated $285,000., it might be easier to argue that it was reasonable for taxpayers to report that amount. Even with a large error, a taxpayer's behavior and actions may still be acceptable.

What about an error in the computation or transposition of the return? It is possible to make a common error, provided you have reasonable cause and made a good faith effort. It's easy to misinterpret numbers or make other mistakes. It is unlikely that the IRS will be able to understand a return with more than one of these errors.

A few mistakes can be explained even if they are obvious in the end. The IRS also considers the taxpayer's knowledge, experience, education, and trust in tax advisors. The facts and circumstances are important. It is also relevant to consider the taxpayer's education, experience, and knowledge regarding tax laws. Many taxpayers rely on the advice of a tax professional to avoid penalties.

The IRS states that you must rely on a tax professional objectively and reasonably. Taxpayers are required to provide all information necessary for their tax advisor to assess the tax matter. It is wrong to cherry-pick the information that the taxpayer gives the tax adviser to get the right answer.

A tax advisor must also be knowledgeable in the subject matter. According to the IRS, the adviser should have expertise and knowledge in tax matters. It is possible that a taxpayer with a complicated corporate tax problem might not be able to trust a low-income individual tax adviser, regardless of how diligently he follows his advice.

According to the IRS, auditors should decide if the taxpayer acted reasonably and in good faith. This will be done based on each case and all facts. The taxpayer must have exercised reasonable care under the circumstances. The penalty can also affect the meaning of reasonable cause.

Some penalties also require proof that the taxpayer acted in good faith or that the taxpayer failed to comply due to willful neglect. Each penalty provision may not have the same standard for penalty relief. Sec. Sec.

Sec. Sec. The Sec. Finally, the Sec. It is important to examine the penalty you are trying to avoid. Taxpayers are eager to prove that their facts and conduct have met all requirements.

In writing

Do taxpayers have to present their cases orally? Although it is not common, taxpayers may be able to start this way in certain cases. It is best to put it in writing, as with everything dealing with the IRS. Many times, the tax regulations require the taxpayer to request a waiver of the penalty in writing. Secs. Secs.

All facts and circumstances will determine whether the elements of reasonable cause, good faith, or willful neglect are present. When the taxpayer used ordinary business care and prudence, a reasonable cause can be established. Ordinary business care or prudence can be defined as exercising the same level of care as a reasonably prudent person, but not being able to comply with the law.

Key elements

In determining reasonable cause, the taxpayer's efforts to accurately report their tax liability are the most important factors. The IRS instructs agents to consider all relevant factors when assessing taxpayers' efforts, such as the nature of the tax, complexity of the issue, the competence of tax advisers, and so forth. The IRS also considers the taxpayer's education, experience, and reliance upon the tax adviser's advice.

The IRS instructs agents to evaluate all facts and circumstances to determine whether taxpayers exercised ordinary business care or prudence. They also review all information, including the taxpayer's reason, compliance record, length of time, and other circumstances beyond their control. But don't think that this only applies to the one tax year.

The IRS advises agents to also look at the three tax years before them. They examine payment patterns and compliance histories. It is possible that a taxpayer who is repeatedly assessed the same penalty does not exercise ordinary business care. The IRS may have previously assessed the same penalty and forgone it. This is a sign that the taxpayer may not be exercising normal business care when the same thing happens again.

The IRS will, however, consider this if it is the first instance of noncompliance. The IRS must consider all facts and circumstances. This includes the time period between the tax problem and its resolution. The penalty should be correlated with the date and event that caused the error.

Even the IRS will admit that there are circumstances and mistakes beyond taxpayers' control. The IRS asks if the taxpayer could have anticipated or foreseen the problem.

What about getting tax advice from IRS? Is that always reasonable, or? Not necessarily. This is especially true for oral advice. Consider whether the advice was given by the IRS in writing or verbally. Oral advice is usually not worth the paper it isn't printed on. The IRS will evaluate the information and determine if it was written advice that was given to respond to a specific request. The IRS wants to know whether the individual relied on the IRS advice.

Complex tax laws can lead to taxpayers making mistakes. Some things are easy to understand, while others are more complicated. The IRS states that a taxpayer generally does not have reasonable cause to pay a penalty for late filing of a return or payment of tax obligations. The taxpayers claimed that they believed tax returns were due May 15, not April 15. Even though a tax professional said that it is unlikely to save them from penalty.

They claimed that their accountant had filed their tax return. The accountant then forgot to file it. According to the IRS, everyone is responsible for timely filing taxes as well as for paying them. Even if taxpayers have recourse to accountants, bookkeepers, or attorneys, they cannot delegate the responsibility for timely filing tax returns and timely paying their tax obligations. However, they might be forgiven for things such as the inability to access records or the fact that they are not aware of a law change.

Taxpayers may be eligible for penalty relief if they are not familiar with the law. Relevant factors include education and whether the taxpayer is subject to the tax previously. What about forgetfulness as a basis of reasonable cause? According to the IRS, forgetfulness is a lack of reasonable cause.