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Penalty Abatement Facts and How to Apply

October 21, 2010

The IRS enforces penalties to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code. This consists of preparing an accurate return, filing it timely, and paying any tax due for most taxpayers. Efforts made to fulfill these obligations constitute compliant behavior. Most penalties apply to behavior that fails to meet any or all of these obligations.

To get penalties abated or eliminated, you must show Reasonable Cause for your failure to fulfill your taxpayer obligations. Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed.

Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but still failed to comply with those obligations. They may include:

  • Death of a family member
  • Serious health problem
  • Bad or erroneous financial advice
  • Flood, hurricane, fire or other natural disaster
  • Theft of funds, including embezzlement
  • Lost or destroyed records
  • Divorce that caused extreme stress and deteriorated your financial condition
  • Unemployed for an extended period of time
  • On a fixed income or retired
  • Caring for another person and the financial strain this is placing on you

Your application for a Penalty Abatement will be reviewed by a Revenue Officer and it is entirely up to the discretion of this Officer to make the final decision. According to the IRS, Reasonable cause does not exist if, after the facts and circumstances that explain the taxpayer’s noncompliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within a reasonable period of time.

How to Request Penalty Abatement

  • Fill out IRS form 843, “Claim for Refund or Request for Abatement.”
  • Include copies of documents that prove your case
  • Make copies of any letter you send to the IRS

Penalty Abatement Warning

Penalty Abatement of “failure-to-pay” tax penalties is best for taxpayers that are going to repay their tax debt in a lump sum. If you intend to pay the IRS over a period of time with an Installment Agreement or a similar payment plan penalties will continue to accrue on your account over that time period.

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