Dealing with the IRS can be intimidating, especially when you receive a notice stating you owe penalties. Penalties typically result from late filing or late payment of taxes. If you believe the penalties were assessed incorrectly or you have reasonable cause for the delay, you can request that the IRS remove or reduce the penalties. Writing a persuasive letter is key to getting the IRS to grant your request. Here’s how to write an effective letter to the IRS asking for penalty abatement.
Should I hire a tax professional?
You don’t necessarily need to hire a tax professional to request penalty removal. However, a tax pro experienced in IRS audit defense and collections can increase your chances of success. They understand the intricacies of the IRS system and criteria for penalty relief. They can help craft the most compelling case and make sure you provide the right documentation. If your tax situation is complex or the penalty amount is significant, getting expert assistance is advisable.
What penalties can I request removal of?
You can request abatement of most civil tax penalties, including:
- Failure to file penalty
- Failure to pay penalty
- Accuracy-related penalties
- Information reporting penalties
- Trust fund recovery penalties
The IRS is not as likely to remove penalties for intentional disregard of tax laws versus reasonable mistakes. Criminal tax evasion penalties cannot be excused.
What are the grounds for reasonable cause?
To have penalties removed, you must show reasonable cause for the failure and that you acted in good faith. Reasonable cause is based on the facts and circumstances in your situation. Some common reasonable cause arguments include:
- Death, serious illness, or injury in your immediate family
- Fire, natural disaster, or other disturbance
- Unable to obtain records
- Erroneous or incomplete information from IRS
- Reliance on a qualified tax professional
- Financial hardship or inability to pay
- First time penalty with no previous history of noncompliance
Your argument must convince the IRS that you exercised ordinary care and prudence but could not comply due to circumstances beyond your control.
How do I request IRS penalty removal?
You can request penalty abatement verbally or in writing. A written letter is best for creating a clear record and compelling case. Here are key steps:
- Review the penalty notice from the IRS. Identify the tax period, types of penalties, and penalty amounts. Gather supporting facts and documentation.
- Research the IRS reasonable cause criteria. Determine which reasons align with your situation.
- Draft your letter. Follow business letter formatting. Identify each penalty and tax period. Present key facts and explain in detail why you meet reasonable cause criteria.
- Attach documentation. Include copies of death certificates, doctor’s notes, fire reports, tax preparer letters, etc.
- Mail to the IRS service center listed on the penalty notice. Send by certified mail with return receipt. This provides proof of timely response.
- Keep a copy for your records.
What information should the letter include?
The letter requesting IRS penalty relief should include:
- Your name, address, SSN, phone number
- A statement it is a request for penalty abatement
- Identify the IRS notice: date, number, tax period, penalty type and amounts
- Relevant background and key facts
- Explanation of what prevented compliance and why it was beyond your control
- Statement that you exercised ordinary care and prudence
- Request for the IRS to remove each penalty, provide specific amounts
- Copies of supporting documentation
- Signature, date, phone number
Focus on being complete, honest, and detailed in describing reasonable cause criteria. The goal is to demonstrate why abatement is justified and provide evidence backing your claims.
Letter tips
Follow these tips when drafting your letter to the IRS:
- Be polite and respectful, not confrontational
- Only include factual information you can verify
- Use clear headings and bullet points
- Put key points upfront
- Explain timeline clearly
- Avoid excessive detail and repetition
- Be comprehensive but concise
- Specify the penalty relief requested
- Use spell check and correct grammar
A well-written letter can sway the IRS to see your position and grant the penalty abatement.
What documentation should I include?
Back up your claims of reasonable cause by providing supporting documentation. Examples include:
- Death certificate if a death caused the filing or payment delay
- Medical records if illness or injury was a factor
- Police reports, insurance claim documentation, or contractor estimates for casualty losses
- Letters from qualified tax professionals relied on for advice
- Proof of payments to tax professionals or the IRS
- Financial records confirming inability to pay or intent to comply
Don’t include original documents, only copies. Organize records chronologically and neatly label each document. Reference documentation in your letter. Make it easy for the IRS to connect the documents to your position.
Sample IRS penalty abatement letter
Below is a sample letter format with key elements:
[Your Name]
[Your Address]
[City, State, Zip Code]
[Phone Number]
Internal Revenue Service
[Service Center Address on Notice]
[Date]
Re: Request for Penalty Abatement for [Tax Period]
Dear Sir or Madam:
I am writing to request abatement of the [name of penalty] assessed against me for the [year] tax period in the amount of [penalty amount].
On [date] I received Notice [notice number] stating I owed [amount] in [penalty name] penalties related to [reason for penalty]. I am requesting abatement of this penalty because [describe your reasonable cause reasons and facts]. [Provide detailed explanation, timeline, and how circumstances were beyond your control.]
[Describe how you exercised ordinary care and prudence.]
Enclosed are copies of [list documentation] to support my reasonable cause explanation.
Based on the facts above, I believe the failure was due to reasonable cause and not willful neglect. Please remove the [name of penalty] penalty completely. If you need any additional information or clarification, please contact me at the number above.
Thank you for your consideration.
Sincerely,
[Your signature]
[Your name]
Enclosures: [List documents]
Key points
Here are key points to remember when requesting IRS penalty relief:
- Review the notice and identify penalty details
- Research what constitutes reasonable cause
- Craft a compelling case that you exercised ordinary care
- Provide timeline, details, and documentation
- Cite specific reasonable cause criteria
- Be thorough yet concise
- Send letter certified mail
- Keep a copy for your records
With the right approach, you can successfully request that the IRS remove or reduce tax penalties.
What if my request is denied?
If the IRS denies your request to abate penalties, you still have options:
- Appeal the decision. Follow the appeals instructions on the denial notice.
- Submit an offer in compromise to settle penalties for less than owed.
- Request a collections due process hearing to appeal penalties and proposed collection actions.
- Petition U.S. Tax Court if you received a statutory notice of deficiency.
Don’t give up if your initial request is denied. Be polite but persistent in exercising your rights to question IRS penalty assessments. Get assistance from a tax professional when needed.
Can the IRS reduce penalties without eliminating them completely?
Yes, the IRS may decide to reduce penalties without fully removing them. The IRS can compromise based on facts and circumstances. For example, they may remove one penalty type but uphold another. Or they may reduce the amount of certain penalties. When negotiating, it is acceptable to provide an offer asking the IRS to remove specific penalties and lower other penalties by a requested percentage.
Conclusion
Writing an effective letter is crucial to convincing the IRS to grant penalty relief. Reasonable cause arguments backed up by evidence and details have the best chance of success. Use persuasive writing, align with penalty abatement rules, and thoroughly explain the circumstances. With a well-crafted letter, you can demonstrate reasonable cause and good faith in requesting that IRS penalties be removed or reduced.