The IRS is aggressively targeting high net-worth individuals and businesses. The reason is simple, there is more meat on the bone when the government catches a big fish. Technology has also made it much easier for the government to catch a big fish.
Even the most benign non-compliance can lead to unfair penalty assessments. Large penalty assessments have become the norm in cases involving foreign non-compliance. The IRS routinely assesses significant penalties in cases involving Forms 3520, 3520-A, 5471, 8938, and FinCen 114 (FBAR). Other significant penalties assessed by the IRS include: Failure-to-File (FTF), Failure-to-Pay (FTP), Accuracy-Related Penalty, and Civil Fraud.
Some of these penalties are generated automatically while others are assessed by an examiner. Regardless of the assessment process, all the penalties mentioned above may be challenged by taxpayers. The key to penalty relief is demonstrating to the IRS that the taxpayer has “reasonable cause” for their non-compliance.
For a variety of reasons, many large penalties will not be challenged. Some taxpayers will simply elect to pay the penalties to make the IRS go away. Some taxpayers will pay the penalties because the prospect of challenging the IRS is too intimidating. Some taxpayers will pay the penalties because the idea of paying tax professionals to protest IRS penalties seems foolish when the prospect of a favorable outcome is uncertain at best.
As a matter of principal, it is always troubling to see taxpayers acquiesce to unfair penalty assessments. Many tax professionals will shy away from advising taxpayers to protest penalties for two main reasons: (1) resolving complex penalty cases with the IRS is difficult and time consuming; and (2) there is a good chance that you will lose your client if you send a large bill for an unsuccessful result.
Other tax professionals will prepare a short “have mercy on me” letter to the IRS requesting penalty relief. This type of letter typically asserts that the taxpayer has “reasonable cause” but fails to provide sufficient information or supporting documentation which allows the IRS to rule in favor of the taxpayer. In most cases, the IRS will quickly conclude that the taxpayer has not established “reasonable cause” for the non-compliance and issue a denial letter.
Instead of giving the taxpayer a reasonable chance to win at the lowest level, the tax professional who sent the “have mercy on me” letter has now crippled the taxpayer’s chances by burning their first opportunity to obtain relief. Now the taxpayer must overcome an adverse IRS determination by filing a protest with the Office of Appeals. When this situation occurs, many taxpayers will simply accept the IRS denial and decide that the penalty is not worth protesting.
Giving sound advice to clients is very tough to do in penalty cases where the reasonable cause argument is not crystal clear. So how do you create a win-win for yourself and for your client? Give your client a legitimate opportunity to win with the IRS without the financial burden associated with preparing a detailed penalty protest.
TLPA is offering qualified taxpayers an opportunity to protest their penalty case on a straight contingency fee basis. Doing so shifts the financial burden and risk from your client to TLPA. The risk for TLPA is significant as it is easy to have six-figures of billable time into a penalty protest in a complex case.
Regardless of the outcome with the IRS, you are creating a win-win for you and your client. If TLPA is successful in abating the penalty, you made a smart recommendation to your client and your client will be happy to receive their refund from the IRS. If TLPA is not successful, you still made a smart recommendation to your client because you saved your client the professional fees associated with an unfavorable outcome. In addition, your client will have the satisfaction of knowing that they played their hand with the IRS.
Over the past 20 years, TLPA has saved taxpayers tens of millions of dollars in IRS penalties. We believe that our unique philosophy and practical approach makes it easy for the IRS to approve our penalty abatement requests. Even if the IRS does not approve our initial request for abatement, we generally settle most cases with the Office of Appeals by clearly demonstrating the hazards of litigation.
The most important step for us is figuring out whether your client has reasonable cause for their non-compliance. We ask a lot of questions and try to keep in an open mind. Often, the reasonable cause argument is not a based upon a single event but rather a series of events that tie together. It is important to think outside the box and understand that even if the taxpayer screwed-up, the penalty assessment may not be fair.
ALERT Tax Professionals: Our goal in any contingency fee representation is to effectively become partners in the case with your client. When we win, your client wins! For more information, please contact Teig Lawrence at 305-576-4242.
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