SERVICES › IRS PENALTIES

Houston IRS Penalty Removal Attorneys

You probably found us by searching for “IRS penalty attorney,” “tax penalty lawyer,” or some version of “how do I get rid of IRS penalties and interest?” You are in the right place. Mitchell Tax Law is a Houston tax law firm that helps individuals and businesses remove or reduce IRS penalties — the right way, with the right defenses, through the right channel.

Penalties are not a side issue. On a multi-year tax bill, penalties often equal or exceed the underlying tax, and the IRS adds interest on top of both. The good news is that most penalties can be challenged. The trick is matching the right defense to the right penalty and presenting it in the right forum.

How IRS penalties actually work

Most IRS penalties are additions to tax assessed under Title 26. Some are computed automatically by IRS systems — failure to file, failure to pay, estimated tax. Others are imposed manually by an examiner during an audit — accuracy-related, fraud, and most information-return penalties. The distinction matters because manually imposed penalties require supervisory approval under IRC §6751(b) before assessment, and the absence of that approval is a complete defense.

The IRS imposes dozens of different penalties. The page on common IRS penalties walks through the everyday ones. Below we cover the categories we see most often in Houston exam and abatement work.

Failure to file, failure to pay, and the late-filing trap

The failure-to-file penalty runs at 5% of unpaid tax per month, up to 25%. The failure-to-pay penalty runs at 0.5% per month, also up to 25%. Run together they reach maximum quickly. A common mistake is filing an extension and thinking it extends the time to pay — it does not. The clock on the failure-to-pay penalty starts on the original due date.

For returns that show no balance due but are filed late, the penalty is still in play if there is a later adjustment. We see this constantly with amended returns and audit pickups.

Estimated tax and underpayment penalties

Individuals are subject to a penalty for underpayment of estimated tax under §6654 when they have not paid enough in through withholding or quarterly payments. Corporations face the corollary under §6655. The penalty is interest-based rather than flat, and there are safe harbors — 100% of prior-year tax for most taxpayers, 110% for higher-income filers. Documenting the safe harbor is the cleanest defense.

Accuracy-related and negligence penalties

The accuracy-related penalty under §6662 is the 20% penalty that comes up most often in audit. It applies for negligence, substantial understatement, substantial valuation misstatement, and a handful of other grounds. The defense is reasonable cause and good faith reliance, with the facts driving the result.

Two recurring fact patterns: penalties stemming from a bookkeeper’s mistakes and penalties imposed because the taxpayer failed to read the return. Even with a good preparer, a failure to review the return can void the penalty defense. We work this issue carefully at exam and at Appeals.

Civil fraud and the 75% penalty

The civil fraud penalty under §6663 is 75% of the underpayment attributable to fraud. The IRS has the burden of proving fraud by clear and convincing evidence — a high bar. Civil fraud is also a potential bridge to criminal exposure, so the case has to be defended carefully, with privilege and timing in mind. A taxpayer is not necessarily accountable for their preparer’s fraud, which is a meaningful defense in the right case.

Information return, reporting, and international penalties

The IRS has a deep catalog of information-return penalties — missing or incorrect 1099s, W-2s, K-1s, 1095s, and the Affordable Care Act employer penalties. Whether the IRS even has authority to certify ACA employer penalties is itself contested. Reporting penalties for reportable and listed transactions carry six- and seven-figure numbers and have their own changing notice requirements.

FBAR penalties (under Title 31, not Title 26) are their own world. The Supreme Court has narrowed the per-form structure, courts have held that FBAR penalties can be unconstitutionally excessive, and there is real debate over whether FBAR penalties die with the taxpayer or survive against the estate. If you have an FBAR exposure, the defense strategy matters as much as the disclosure.

Reasonable cause: what actually works

Reasonable cause is the single most important penalty defense. The standard asks whether the taxpayer exercised ordinary business care and prudence and was nevertheless unable to comply. We maintain a library of reasonable cause court cases so we know what does and does not move the needle.

What works in real cases: serious illness contemporaneous with the deadline; software failures during e-filing; reliance on a competent professional with complex tax advice in the file; records lost to disaster or theft; and significant unanticipated events. What does not work, on its own: forgetfulness, busy season, or general confusion about tax law. The defense has to be documented, specific, and tied to the exact period the IRS is penalizing.

First-Time Abate and statutory exceptions

The IRS will administratively abate certain penalties under the First-Time Abate (FTA) policy if the taxpayer has a clean compliance history for the prior three years and has filed or filed an extension for the year at issue. FTA is fast, it does not require a written reasonable-cause argument, and it should always be considered first — saving the substantive reasonable-cause defense for the years FTA cannot reach.

Statutory exceptions are also worth checking. Some penalties have built-in carve-outs — for example, the de minimis exceptions on certain information-return penalties, or the safe harbors on estimated tax. If a statute lets you out, you do not need to argue reasonable cause at all.

How to request abatement and where to fight

The right channel depends on the penalty and the posture. For automatically assessed penalties post-filing, the path usually starts with Form 843 and a written request to the service center. For penalties proposed in audit, the right place to fight is at the agent level and then at the IRS Office of Appeals on hazards-of-litigation grounds. For assessed penalties already past Appeals, the path is pay and sue for refund — though whether a jury trial can be conditioned on paying the penalty first is itself contested.

There are also strategic traps. An offer of IRS Appeals review can preclude later judicial review of certain matters, so the decision to take or decline an Appeals conference has to be made with the litigation path in mind.

Preparer penalties and related-person issues

The tax return preparer penalty under §6694 applies to paid preparers who take unreasonable positions or willfully understate liability. We defend preparers in penalty exams and we also handle the related issue of how a preparer’s misconduct affects the underlying taxpayer’s penalty defenses.

IRS interest: what is abatable and what is not

IRS interest is statutory and runs on tax and on most penalties. It is generally not abatable, but there are exceptions — suspended interest under §6404(g) for delayed IRS communications, math errors caused by ministerial or managerial acts, and certain combat-zone and disaster relief situations. We check the math on every case. The IRS gets interest computations wrong often enough to make the check worthwhile.

How we work with Houston penalty clients

Penalty work is attorney work at our firm. The same Houston tax attorney who reads the notice writes the abatement letter, drafts the Appeals protest if it gets there, and handles the case through resolution. Our typical engagement starts with a flat-fee review of the assessment and a written defense strategy, so you know what you are paying for and what the realistic outcomes look like before we file anything with the IRS.

We also handle the cases that overlap with other IRS issues — business use of employee tax withholding, civil/criminal coordination where a criminal prosecution can delay a civil tax case, and penalty issues tied to audit defense and IRS collections.

If you have a tax penalty and you want it removed and want to talk to a tax lawyer, we want to hear from you. Please call us at (713) 909-4906 or schedule an appointment to get help abating your penalties.