IRS Penalty Abatement: Removing Penalties Owed
If you don’t believe that you should have to pay certain federal penalties or interest, you can apply for IRS penalty abatement. If you qualify, the IRS removes some or all of your penalties.
To qualify, you need to prove that there was a reasonable cause for filing or paying late. In some cases, you can qualify if the IRS made an error or delayed your return, or if the IRS gave you bad advice in writing that led to the penalties and interest. You can also receive abatement for the first offense and it is one of the penalties the IRS will abate.
If you can prove that there was a serious reason you didn’t file or pay your taxes, you may qualify for reasonable cause. Follow the link to find out about reasonable cause.
IRS Delays or Errors
If the IRS made mistakes on your assessment, you may apply for abatement in this category. You can also apply if the IRS caused delays.
When you have penalties due to receiving incorrect advice from the IRS, you can apply for this type of abatement. It is rarely seen. See the link above for more information.
The First Time Penalty Abatement (FTA) program is for taxpayers with a good track record of compliance. If you have late payment penalties or other penalties for the first time, you may qualify. This program is not for repeat offenders.
You can request abatement on failure-to-file and failure-to-pay penalties. You can also request abatement on return accuracy penalties, but you need to use special procedures and may even need to take the IRS to court.
You can apply verbally, in writing, or by using Form 843. Regardless of the method you choose, you need to explain what you failed to pay the taxes owed.
You can request penalty abatement by writing a letter to the IRS. The letter should explain why you deserve abatement. Fortunately, we have a sample petition letter so you get a sense of what the IRS may expect. It is for information purposes only. We believe calling the IRS can be more effective in many cases.
You can use IRS Form 843 to claim a refund or ask for an abatement. The link above provides details and instructions for this form.
Applying for Relief on the Estimated Tax Penalty
The estimated tax penalty is generally not abatable, and to get relief from this penalty, you need to request an exclusion when filing your tax return. You can request an exclusion by filing Form 2210 (Underpayment of Estimated Tax by Individuals, Estates, and Trusts).
You can file Form 2210 (Underpayment of Estimated Tax by Individuals, Estates, and Trusts).
with your individual tax return. This is the same form that you use to calculate your penalty, but it also has a section where you can request relief on some or all of these penalties.
How Many Penalties Are Abated Every Year?
The IRS abates a small portion of tax penalties every year. For example in 2019, the agency abated just 9% of total individual penalties and 12% of failure-to-file and failure-to-pay penalties.
The main reason the IRS doesn't abate penalties is that most taxpayers don't request penalty abatement. In cases where taxpayers request abatement, the IRS often denies the first request, and although they are allowed to appeal, most taxpayers don't.
If you want to get tax penalties abated, you need to be proactive about contacting the IRS, and you need to be willing to appeal a denial. Additionally, you need to take steps to increase your chance of penalty abatement.
Tips for Penalty Abatement
If you have tax penalties that you want to get waived, you should follow these tips. They are designed to boost your chance of success:
- Always take advantage of first-time-abatement — The IRS will typically remove all penalties related to a first-time offense whether you can show reasonable cause or not. You can request first-time abatement over the phone.
- Request reasonable cause in writing — Don't call the IRS if you want to request reasonable cause. Instead, make your request in writing and be ready to thoroughly explain your situation. The IRS accepts phone calls on this issue, but written requests are usually more successful.
- Use Form 843 to request reasonable cause — Although the IRS allows you to write a letter or use Form 843, you should use the form. It has all of the details you need to include. In contrast, if you write a letter, you may accidentally omit critical information.
- Be detailed with reasonable cause requests — When explaining why you were unable to pay or file your return, make sure that you show how the situation affected the rest of your life. For example, if you filed late due to an illness, also explain how the illness prevented you from working or attending events. Then, map out a timeline of what happened.
- Demonstrate past compliance — The IRS is much more likely to abate penalties for people who are generally compliant with tax regulations. Show your past compliance, and explain why you incurred any previous penalties.
- Follow up — Sometimes, the IRS loses penalty abatement requests. Make sure to follow up on your request and submit additional documentation as needed.
- Appeal denials — If the IRS denies your request for penalty abatement, always appeal. Most first-round denials are computer-generated, and you will get more favorable results by talking with a real person.
Also, consider working with a professional. Tax professionals work with the IRS every day and they understand what the agency wants to see with penalty abatement requests.
Mistakes to Avoid With Penalty Abatement
When you're trying to get penalties removed from your account, you may want to avoid paying the penalties. If you have unpaid taxes or penalties, you can request a Collection Due Process (CDP) hearing which gives you a chance to explain your situation to the IRS. If you don't have an unpaid balance, you cannot request a CDP so you lose out on this potentially valuable angle.
If you're applying for reasonable cause on a failure-to-file penalty, make sure that you don't claim financial hardship or reliance on a tax professional. The IRS will not accept either of these two excuses as reasonable cause in this situation, and the agency has won many court cases fighting this issue.
The IRS doesn't accept financial hardship as a reason for not filing because the agency offers a number of free filing tools and workshops. Additionally, the agency tends to reject claims related to incorrect advice from tax pros because filing rules and deadlines are well-publicized to the general public.
Finally, remember to keep the statute of limitations in mind. You must apply for penalty abatement within three years of the date the return was filed or within two years of the date the penalty was paid.
What to Expect When You Apply for Penalty Abatement
The process varies based on the type of penalties and how you request abatement. If you request first-time abatement over the phone, you can get instant approval, but the IRS may take around three weeks to credit your account.
The IRS takes two to three months to review a written request for penalty abatement due to reasonable cause, and if you need to appeal their decision, the process can take six to 12 months.
When you work with tax services professionals, they gather the necessary tax records and prove to the IRS that the penalties should be removed. These services reduce your overall taxes and make your payments smaller. Here’s more information on that process.
You can find a list of tax professionals with penalty abatement experience by doing a search below and then using the search solution filters to filter by "penalty abatement."