Tax Penalties: How to Stay on Top

You know what sucks? IRS penalties. If you’re a business owner you know what I mean.

Thankfully there are many strategies you can use to potentially defeat an IRS penalty, and I want to share them with you.

Because of a recent court case, there’s a new way to beat an IRS penalty that has materialized. Let me introduce you to Section 6751(b) of the Internal Revenue Code.

NERD LANGUAGE: Internal Revenue Code Section 6751(b) states, “No penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination or such higher level official as the Secretary may designate.” (Bradford Tax Institute)

Sounds exciting right? What on Earth does this even mean?

It means, assuming the IRS didn’t follow proper legal procedures before assessing the penalty, you now have a way to getting your penalty waived.

Code Section 6751(b) says that the IRS cannot assess a penalty unless an IRS supervisor or higher-level official designated by the Treasury secretary personally approved the determination in writing.

If the IRS does not follow this requirement, the IRS is considered to have “erroneously assessed the penalty.” This means its viable for an abatement. (This is legal jargon for reducing the sentence)

I want you to remember, this provision does not apply to the following:

  • Individual and C corporation late-filing and late-payment penalties
  • Individual and C corporation estimated tax payment penalties
  • Any other penalty automatically calculated through electronic means

6751(b) abatements only cover Title 26 penalties (i.e., penalties under the Internal Revenue Code).

Some of the penalties that Section 6751(b) applies to include:

  • Accuracy-related penalties
  • Civil fraud penalties
  • Daily delinquency penalties (e.g., Form 990)
  • Information return penalties (e.g., Form 1099, Form W-2)
  • International information return penalties (e.g., Form 8938, Form 5471)
  • Partnership and S corporation late-filing penalties
  • Tax return preparer penalties
  • Trust fund recovery penalties
  • Valuation penalties

We want to beat our friends over at the IRS. That’s something we can all agree on, right? The best way to do that is to be knowledgeable about what you’re dealing with and stay one step ahead of those pesky penaltie