When a company experiences a process breakdown within their tax filing system that results in filing or deposit noncompliance, they are hit with a penalty. Depending on the reason for the error, a company can file for a penalty abatement, which can either eliminate the penalty all together or lessen the fine. Abatements can be put into two categories, agency error abatements and employer error abatements. Agency error abatements are requested when the employer has reasonable proof that the agency failed to follow their own guidelines causing employer’s account to be assessed with penalty and interest. It is then up to the employer or their third party processor to file for an appeal and request the penalty abatement by completing the following steps:
- Compile all back up required to prove agency made an error in determination of penalty and interest or in posting payments or returns.
- Contact the agency to get specific instructions on how to submit an abatement to that jurisdiction. With the IRS, calling is the most effective way to contact them and receive information about penalty abatement instructions.
- In addition to specific forms per agency abatement requirements, a letter is needed to explain the circumstances and findings that prove the agency is at fault.
- Correspondence should be sent to the department that handles abatements for jurisdiction in question and employer should maintain a copy for the appeals process if need be.
- If abatement is denied, an appeals process is available to employers and each jurisdiction has instructions on how to complete this process.
Employer error abatement is requested when events outside employer control cause penalty and it can be proven there was no intent to withhold money from the agency or to not comply with agency requirements. It cannot be because of human error, but rather situations out of their control like energy loss, fire damage to business premise, damage to property, natural disasters etc. This type of penalty abatement can be resolved by following steps below.
- Employer should compile correspondence with detailed explanation to send to appropriate department per agency guidelines. Just as with the other abatements, employers should inquire about the abatement process from the agency by calling available service line.
- It’s important to explain in detail events that lead to occurrence. Generic terms like “System Glitch” are not acceptable and usually lead to rejection.
- Blaming others in abatement requests also lead to denial as in most agency guidelines, employer is responsible for submitting taxes and returns therefore reliance on third party is not a reason to request abatement. Specific reasons should be used to request abatement.
- Some agencies provide a onetime waiver based on whether account is in good standing, therefore employer should find out if that opportunity is available.
- Appeals are also available if abatement is denied.
In the case of the IRS, there is a third party advocate service available if the appeals process fails and employer feels abatement determination missed key arguments that should lead to abatement being granted. Additionally, burden of proof lies with party requesting abatement to prove that they followed all guidelines and something outside their control caused noncompliance. And lastly, do not procrastinate. There are statute of limitations that affect when abatements can be requested, varying by jurisdiction. Employers can acquire this information from the agency, but the main thing to note is abatements should be requested as soon as possible. Every agency has a penalty and interest escalation process that’s implemented after a predetermined period of non-resolution. The further the issue goes in this process the harder it gets to facilitate an abatement as more parties get involved.