What is an abatement? 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 abatement and employer error abatement.
Agency Error Abatement
Agency error abatement is 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 or check their website to get specific instructions on how to submit an abatement to that jurisdiction. Many agencies provide detailed instructions on their specific abatement and appeal process on their websites.
- Write a letter to explain the circumstances and findings that prove the agency is at fault, in addition to specific forms per agency abatement requirements.
- Send correspondence to the department that handles abatement 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. Each jurisdiction has instructions on how to complete this process.
Employer Error Abatement
Employer error abatement is requested when events outside employer control cause penalty and when 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 such as 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.
- 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.
- Explain in detail events that lead to occurrence. Generic terms like “System Glitch” are not acceptable and usually lead to rejection.
- Use specific reasons to request an abatement. 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.
- Find out if a onetime waiver - based on whether account is in good standing - is available.
- Appeals are also available if abatement is denied.
Taking Care of Your Abatement
In the case of the IRS, there are third-party advocate services 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 abatement can be requested, varying by jurisdiction. Employers can acquire this information from the agency, but the main thing to note is abatement should be requested as soon as possible. Every agency has a penalty and interest escalation process that is 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.
Join us on an on-demand webinar where our payroll tax experts discuss How to Manage Abatements Like a Pro.