Taxpayers hate paying tax penalties, but tax relief may be on its way with the help of a penalty abatement request letter. The penalty abatement process is an option many taxpayers do not know about, but is a great way to help remove your IRS penalties. In this quick guide, we will help clear up any questions and provide you with the information you need to know about penalty abatements.
What Is a Penalty Abatement?
A penalty abatement is a process of completely removing an imposed tax liability. You need to meet specific criteria before you can qualify for this relief, however. There needs to be a reasonable cause for this abatement, and the Internal Revenue Service (IRS) must be willing to reconsider the penalty.
A reasonable cause usually refers to the following:
- Death or serious medical conditions of the taxpayer or their immediate family
- Flood, fire, natural disaster, or other disturbance
- An error by an IRS employee or the inability to get records when requested
- You used all ordinary business care to meet your Federal Tax obligations but could not do so. For example, mailing the payment on time or the tax return but including the incorrect address or the wrong postage amount
In most cases, penalty abatement is the best option to reduce or resolve your penalty, but you need to make sure you comply with all the requirements involved in a penalty waiver before you contact the IRS.
How a Penalty Abatement Letter Works
A penalty abatement request letter notifies the IRS that you want to remove the penalty for a reasonable cause. This letter documents the cause and explains your specific circumstances. This abatement letter is often the right course of action in situations where you made efforts to comply with the legal requirements, but — for circumstances beyond your control — you could not meet your tax obligation.
How to Write a Penalty Abatement Request Letter
It comes as no surprise that those writing a penalty abatement request letter for the first time worry about what to include. This process is not as complicated as you may think, though. It comes down to seven critical sections:
1. Write Down Your Information and the Penalty Information
This information will include:
- Your Name
- The identification number
- The representative’s name (if you have one)
- The penalty information, including the specific years and forms in question and a list of penalties accrued by statute number
As you write down all of this information, you need to make sure that everything is clear, concise, and accurate.
2. State an Explicit Request for an IRS Penalty Abatement and Appeal
In this section, you will want to include the specific penalties for which you are requesting an abatement and the reason for the request. Make sure to include:
- The reasonable cause
- Any administrative waivers
- The statutory exceptions
- Whether this is a correction of an IRS error
Additionally, if you previously had a penalty abatement request, you need to make sure to provide an explanation for it in this portion of the letter.
3. Explain the Facts
Here, you will want to explain the circumstances of what happened. Include the following:
- Specific facts that support your reasonable cause defense
- Particular dates and events presented in chronological order
- Explanation of the attached evidence
If you find it applicable, you can also explain your compliance history and your swift attempt to comply with the IRS.
4. Cite any Applicable Laws
In this part of the letter, you want to discuss the applicable law and authority.
- Make sure to cite any authority that provides for the abatement of penalties.
- The authority should include the IRS, any court cases, specific IRS policy statements, regulations, and IRM procedures.
Due to the complexities involved in this section, individuals usually decide to work with a trusted legal advisor to ensure their information is factual and accurate.
5. Apply the Law to the Facts
Next, you will take the law and apply it to your situation. Make sure you explain each reasonable cause argument and how you acted with ordinary business care. As you are writing out these statements:
- Present all of your extenuating factors clearly and accurately
- Label each of your reasonable cause arguments
- Make sure to use the IRS’s Reasonable Cause Assistant Decision Tool
Do not be afraid to elaborate on the fact that this was an isolated incident, discuss future compliance, talk about how your life was affected, and explain that you want to make a timely correction.
6. Request for Next Action
Finish the letter by requesting that the IRS abate the penalty based on the facts and the law you presented, supporting your penalty relief. It’s a good idea to make sure to include a statement requesting an appeal and your contact information in case the IRS does not grant you relief.
7. Include Signature, Attestations, and Attachments
Your completed letter needs to have your signature, the taxpayer’s signature, and an attestation to the letter’s accuracy. Additionally, do not forget to include a list of the attachments that you want to be reviewed with the request.
Need Help Writing a Penalty Abatement Letter?
Even when taxpayers provide sufficient reasons and arguments for their requests, they can still get denied. That is why when dealing with penalty abatement letters, it may be best to work with a trusted tax advisor who understands the abatement process and can get you the results that you want.
These tax professionals can:
- Analyze your tax issue and provide you with upfront pricing before getting started
- Go over the penalty abatement request and discuss the difference between first-time penalty abatement and reasonable causes
- Create a plan and work on the steps required to solve the issue with the proper tax authority
- Follow up with you to explain your results and the next steps required
No matter how complicated your penalty abatement issue may seem, a trusted tax advisor has the experience and professional approach to get your issues resolved.
The Bottom Line About a Penalty Abatement Letter
All hope is not lost if you had issues with the IRS. Relief may be on the way. To see if you qualify for any of this relief, contact Silver Tax Group today. We can discuss your penalty abatement letter questions or provide you with information regarding any other tax-related items you may have.