Penalty abatement is an option that may be available to remove IRS penalties that have been assessed to a tax debt. However, not everyone qualifies for penalty abatement. Also, not all penalties are eligible for penalty abatement. Some of the most common penalties that are able to be abated are failure to file, failure to pay, and failure to deposit estimated tax. In this blog, we will discuss the penalty abatement process from start to finish.
Before you send in your request
Determining whether a situation or event qualifies a taxpayer for penalty relief can be tricky. To help our readers, we have created another blog titled How To Qualify For IRS Penalty and Interest Reduction or Removal, which provide additional details about what types of relief are available. Readers can also visit the IRS website, which provides Penalties at a Glance. Alternatively, you can always seek legal representation, which is helpful not only because a tax professional should be familiar with the qualifications for penalty abatement, but also, they will know how to properly organize and submit your request.
Making your Request: Over the Phone or in Writing
When pursuing FTPA, taxpayers can actually call in to the IRS to request the abatement. However, if the case is being handled by a local IRS office, the taxpayer may need to deal with that office directly. If the FTPA is granted, the IRS will send a letter within 30 days stating that the penalties were removed due to FTPA.
Note: If a penalty is substantial enough, the IRS may not be able to grant FTPA over the phone.
FTPA is generally the only penalty abatement that can be granted over the phone. When it is unable to be granted over the phone the request must be written and sent to the appropriate IRS office. Reasonable cause penalty abatement (RCPA) and penalty abatement due to statutory exceptions are almost always submitted in writing, which includes the use of form 843, Claim For Refund and Request for Abatement. The more general items that will need to be included in a written request are:
- What happened and when it happened?
- What prevented the filing of the return or the paying of the taxes on time?
- How these circumstances affected the ability to file the tax return or pay the taxes and how these circumstances affected the taxpayer’s day-to-day responsibilities?
- What action was taken to pay the taxes or file the returns after the circumstances changed?
- For more specific guidelines you can also see Internal Revenue Manual (“IRM”) § 126.96.36.199.
Along with the explanation, taxpayers should include documentation to support the request. If the request is for RCPA, there are specific items that will need to be included as well. To see those specific items refer to our blog Three Common Reasons For Requesting Reasonable Cause Penalty Abatement. Once the written request or form 843 is completed, the request will need to be mailed to the IRS.
Note: Even if using form 843, it is still recommended to provide a letter and supporting documentation with it.
What if the IRS denies the abatement request?
After sending the penalty abatement request to the IRS, the IRS will generally send a letter within 2-4 months. This will let the taxpayer know whether the IRS accepted or denied the penalty abatement request. If the IRS accepts the penalty abatement request, the process will be completed. But, if the IRS denies the request, there are additional steps that will need to be taken to continue the pursuit for penalty abatement.
Typically a denial for FTPA is due to not meeting one of the qualifications that is required for FTPA, which means that appealing this denial is typically not a possibility. Additionally, FTPA is an administrative abatement process created by the IRS. This means, there is no law requiring the IRS to allow FTPA.
However, if a request for RCPA or penalty abatement due to statutory exceptions is denied, appealing the denial is certainly an option that should be explored. Most of the time the IRS uses an automated system to determine whether a taxpayer’s situation qualifies for penalty abatement and this method can be somewhat unreliable. By appealing the denial the taxpayer can fully explain and elaborate on their situation and why their request should be accepted.
To request an appeal the taxpayer needs to respond to the determination letter (typically an IRS Letter 854C) within 60 days. It’s also important to note that by appealing, the time frame for receiving a new determination is extended by 3-9 months. For more information on appealing a denied penalty abatement request you refer to IRM § 188.8.131.52.
The complete process of having a penalty abatement request accepted can be timely. Again, one of the most important steps is actually making sure the circumstances surrounding the case qualify for penalty abatement so months aren’t spent on something that was never possible in the first place. Writing a letter is also a very important part and may often be better written by a tax professional who has experience with having penalties abated. In most cases regarding a tax issue, it is advisable to seek out a tax professional to make sure that your situation is being handled properly and in a timely fashion.