Can IRS Penalties Be Abated Because of Addiction?
When a taxpayer files a tax return late or has an unpaid liability, the IRS will assess substantial penalties along with interest on the penalties. If there is “reasonable cause”, penalties and related interest clearly can be abated or removed for physical disability. However, can penalties be abated for mental disability or addiction?
The National Institute on Drug Abuse reports an epidemic of prescription drug, alcohol, and heroin use, reporting 2.1 million people in the United States suffering from substance use disorders related to prescription pain relievers, an estimated 4.2 million persons addicted to alcohol and an estimated 467,000 addicted to heroin.
The IRS has tightened it’s standards for penalty abatement. Like a soft tissue injury that does not involve broken bones or severe bodily injury, will the IRS settle or abate penalties for a mental health issue such as addiction? Kent Anderson, attorney in Eugene, Oregon explains,
“Back in the day, I would call [a Revenue Officer] I know and the first words out of her mouth would be “I guess you want me to abate penalties. OK. Now how are we getting the rest paid.” Management has tightened the penalty noose significantly since then. However, I am using psychological evaluations successfully in support of abatement.”
Another tax representative practicing in northern Nevada, states “When I had a number of casino employee clients in Reno, it was not uncommon to file several years of returns late because the taxpayer had been a substance abuser. I always got the penalties COMPLETELY abated because the [taxpayer] had gone through a program and gotten “cured”. That was adequate for the Service to abate penalties.”
My experience concurs with these gentlemen. If you are full paying the tax and know the Revenue Officer, most IRS offices will abate. If the taxpayer will not full pay, a penalty abatement petition is best pursued through a collection due process appeal.