How to Formulate an IRS Penalty Abatement Request

How to Formulate an IRS Penalty Abatement Request

Greetings fellow tax nerds! Perhaps life might suck for me at present but lately there seems to be nothing more satisfying than making tax penalties go away.

Think about it. You’re a good person. You work hard. You struggle everyday to do right. Then all of a sudden something changes. It appears innocuous.

Your busy and it gets blown off. Happens ALL the time. Three years later the IRS sends you a letter asserting that you are guilty and you are indeed guilty as charged.

So what you made a mistake.

I’ve grown exhausted by toothless IRS letters and more so the reprobate tax collection practice of preying on taxpayer fears of the IRS … for profit.

Mistakes happen all the time – Own it – Don’t be a chump.

This post is a manifestation of my time producing for public consumption a known process on how to ease the burden when one finds themselves over victimized by our esteemed taxing authorities after making a simple stumble.

This is how I break it down.

• After choosing the penalty abatement option and method
• Formally request penalty abatement.
• If the IRS representative rejects the request, provide a more in-depth request by the mail.

Basically do NOT take no for an answer.

A well-written penalty abatement letter contains seven components.

1. Your information and penalty information. This includes:
   1. your name (of course)
   2. identification number
   3. representative’s name if you have a representative.
   4. Penalty information includes:
      1. the years and forms in question
      2. a list of all penalties assessed or accrued by statute number.
2. A clear request for abatement and appeal broken down by 3 sub components.
   1. State the specific penalties for which you are requesting abatement and the reason for the request, including:
      • reasonable cause
      • administrative waivers
      • statutory exceptions
      • correction of an IRS error
   2. If you happen to have any prior penalty abatement request, provide an explanation.
   3. Include a request for an appeal hearing in case the IRS denies the penalty relief.
3. An explanation of facts and circumstances.
   • Explain your background, including:
     • a clear chronology of the events for the time period the penalty applies;
     • facts that support the reasonable cause defense; and,
     • an explanation of any evidence attached to the request that supports the stated facts.
   • Include specific dates and events when presenting the chronology of events.
   • Explain your compliance history and your prompt attempt to comply with the IRS, if either are applicable.
4. The applicable law and authority.
   • Cite any authority that provides for abatement of penalties.
   • Authority includes the IRC, regulations, court cases, IRS policy statements, and IRM procedures.
   • This is where you might want to contact someone with experience.
5. An application of the law and authority relevant to your facts.
   • Label and explain each reasonable cause argument as it applies.
   • Explain how you acted with ordinary business care and prudence
   • Present other extenuating factors. Feel welcome to lay it on but remember words are powerful when judiciously used.
   • Incorporate the favorable elements of penalty abatement identified in the previous step to include elaboration on the following
     • isolated incident
     • voluntary correction
     • future compliance
     • timely correction
     • life affected
   • IMPORTANT –
     • clearly label the reasonable cause argument.
     • be sure to use of the IRS’s reasonable cause assistant (RCA) decision tool
6. A request for next action.
   • Close the letter by specifically requesting that the IRS abate the penalty based on the facts and law that support the penalty relief.
   • In the event the IRS does not grant penalty relief, include a statement requesting an appeal hearing.
   • Be sure to provide your contact information.
7. A signature, attestation, and attachments.
   1. The request must include your signature, as well as the taxpayer’s signature, and an attestation to the accuracy of the letter.
   2. Finally, provide a list of the attachments included with the request.

Follow Up and Appeal

1. After submitting the request to the IRS, periodically follow up for a status update in 16 weeks.
2. If you mailed the penalty abatement request to the IRS, the IRS typically responds within 90 days. Exercise patience.
3. Once the IRS has made a decision, they send a determination letter either allowing or disallowing the request for penalty abatement.
4. If the IRS grants the penalty abatement, confirm they abated the penalty by obtaining an account transcript and a copy of the letter or notice received.
5. If the IRS denies the penalty abatement, they issue Letter 0853C or its equivalent detailing the following options:
   • Pay the penalty. If you decline to appeal the decision or take the case to court you must pay the penalty.
   • Appeal the denial through the IRS Office of Appeals. You generally have 60 days to submit a written request to appeal the denied penalty abatement request.
     • Address the written request to appeal to the Service Center Penalty Appeals Coordinator and send it to the IRS address shown on the denial letter.
     • Include a copy of the previous request and denial letter with the appeal.
     • Attest in writing to the accuracy of the information provided.
   • Take the case to court.
     • The taxpayer can pay the penalty and then file a claim for refund using Form 843.
     • If the IRS denies the claim for refund, you then files a formal suit with the appropriate court.

For more on this please feel welcome to contact me directly anytime at your convenience.