The IRS will consider a penalty abatement based upon reasonable cause. Reasonable cause is determined by a review of the taxpayer’s facts and circumstances. In this case, Omni Tax Solutions was able to help a couple reduce their tax liability by proving reasonable cause for abating an assessed penalty.
Background
A husband and wife from New York owned an airline consulting corporation for over two decades. The corporation lost several of their major contracts and they made the hard decision to shut its doors. In the last few years leading up to the business closure, the company laid off all its employees and the couple decided to draw income for themselves, instead of issuing payroll checks. Without having income taxes withheld or payment of estimated tax, the couple found themselves owing individual income tax liability to the IRS for over $167,000. Out of that amount, $53,000 was penalty and $22,000 was interest. The husband was in charge of handling the tax returns and the wife was not aware the payments were not made.
Challenge
The husband had been suffering from a severe neurological disease when they engaged with Omni, and it made information gathering difficult. While struggling with multiple doctors appointments, the wife was also forced to make a difficult decision and had to sell their primary home because they could no longer afford it. Further, the husband’s medical diagnosis occurred after the taxes were owed. This fact required us to prove that he suffered from the disease symptoms, such as memory loss, years prior to the actual diagnosis.
Solution
We patiently worked with the wife to obtain financial information to propose a Currently Non-Collectible status based on their lack of income. The couple paid available equity from the sale of their primary home to the IRS but it was not enough to pay the tax liability in full. We prepared a penalty abatement with a timeline and supporting documents based on the husband’s illness. We researched the illness and provided doctors’ letters to show the high probability that the symptoms had started years before the tax liability was owed.
Result
The IRS approved a Currently Non-Collectible status to temporarily relieve them from financial hardship. The penalty abatement request was accepted within months and the clients’ tax liability was reduced significantly.
