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Discussion:Resource for penalty abatement request

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Axia (talk|edits) said:

17 December 2007

Any resources or "standardized" abatement request letter that contains "reasonable causes" phrases or wordings for abating late payment and dishored check penalties available? Thank you.

BEGooding (talk|edits) said:

December 17, 2007
<---- do search on "reasonable cause"

Mscash (talk|edits) said:

17 December 2007
The following are guidelines that IRS uses. They may be applied, when clearly established, to any situation where penalties are not to be asserted or are to be eliminated because of reasonable cause.

Death or serious illness of the taxpayer or a member of his or her family. Unavoidable absence of the taxpayer. Destruction by fire or other casualty of the taxpayer's residence, place of business or records. The taxpayer is unable to obtain records necessary to determine the amount of tax due for reasons beyond his or her control. The taxpayer mailed his or her return in time to reach the appropriate IRS office but, due to no fault of the taxpayer, it was received timely. The taxpayer did not file his or her return or pay the tax after receiving erroneous information from an IRS employee or competent tax advisor. Any other explanation that establishes that the taxpayer exercised ordinary business care and prudence but was, nevertheless, unable to comply within the prescribed time.

If the taxpayer is a corporation, the guidelines apply to the individuals within the corporation who have authority for attending to tax obligations.

Events that occur after the last date prescribed for payment—this is normally the tax return due date—are not relevant in making a determination that reasonable cause for waiving the penalties exists.

In the case of penalty for failure to pay timely, a taxpayer is bound by regulations to set aside funds for payment of tax due as the liability accrues. Lack of funds or generally poor business conditions are not acceptable reasons for failure to make timely payment of taxes, particularly withholding taxes collected from others. Taxpayers must be able to demonstrate that no funds were available to pay the tax due despite their best efforts. An example of this would be lack of “cash in the bank” to pay tax resulting from a "paper gain." Making a business decision to pay other bills you felt were more pressing, including later payrolls in a business, when there was not enough money to pay all the bills will not be considered a reasonable cause for failing to give priority to the tax liability.

The penalty for failure to make estimated tax payments is mandatory and cannot, except in very limited circumstances that are rarely present, be waived on claims of reasonable cause. This penalty may be reduced or eliminated if the taxpayer meets one or more of the exceptions provided for by regulations. The penalty is computed using IRS Forms 2210, 2210F or 2220.

The penalty for failure to make deposits of employment taxes is based on when deposits are due and when they are paid. IRS applies deposits to the oldest deposit period, something that does not necessarily reflect the taxpayer’s intent. This can result in an increased penalty because all subsequent deposits are treated as being late. Even if reasonable cause does not exist, it may be possible to dramatically reduce any penalty assessed by a change in how the deposits are allocated.

Interest is due from the due date of the return without regard for extensions of time to file and can be waived only if the IRS has failed in carrying out its ministerial duties. “Ministerial duty” is a routine task that does not involve the exercise of judgment.

Death&Taxes (talk|edits) said:

17 December 2007
An ex-IRS man always told me to use terms like '....were not wilful, nor was there any attempt to defraud' and then to set out the mitigating circumstances. This usually works pretty well.

TxSrv (talk|edits) said:

17 December 2007
"...were not willful, nor was there any attempt to defraud"

Those words won't mean anything to IRS in deciding whether a penalty applies. They want facts, not buzz-phrases.

Death&Taxes (talk|edits) said:

17 December 2007
I did continue by saying 'set out the mitigating circumstances.' Mitigating circumstances are facts.

NYEA (talk|edits) said:

17 December 2007
"Any resources or "standardized" abatement request letter that contains "reasonable causes" "

A good resource is the Internal Revenue Manual. Go to the IRS website and look at Part 20 of the IRM. In particular, §20.1.1.3 discusses relief from penalties.

Irsfixer (talk|edits) said:

17 December 2007
I use humor when appropriate. I had a case where the taxpayer mailed their return timely to Austin but with insufficient postage. Somehow the letter was routed to Atlanta and ended up in the dead letter office until October, when it was finally returned to the taxpayer. I blamed the whole thing on the envelope wanting to visit Atlanta. I created short but a vivid story. They abated all but one month's of penalties.

Taxestaxes (talk|edits) said:

16 March 2008
Wondering if anyone has dealt with client who has had IRS tell them they never received their return that was filed. Have someone who got an extension and filed before that deadline, following year got letter from IRS where they had assessed them for prior year. After numerous call they learned IRS said they never received their return. Granted, taxpaper owed quite a bit and has never once denied that they did not make payments (they asked for payment arrangment)but IRS charged them a hefty penalty for not filing. How can they prove they did or what can they say to get the IRS to remove that penalty?

CPAdavid (talk|edits) said:

16 March 2008
Reg 301.6724-1 gives great direction on how to make a reasonable cause argument.

The penalty is waived if the failure is due to reasonable cause and not due to willful neglect.

To show "reasonable cause," filer must demonstrate that there were either (a)significant mitigating factors with respect to the failure, or (b) that the failure was due to circumstances beyond the filer's control,

AND

That the filer acted in a responsible manner both before and after the failure was discovered.

Read the reg for the details.

Fsteincpa (talk|edits) said:

16 March 2008
I just tell them i know Natalie and it's all goooooooood.  :-)

Waynecpa (talk|edits) said:

28 July 2009
I just wanted to share good news! My client received notice today that $17,425.80 in late filing and payment penalties were abated based on a letter I prepared for him. I never even asked for the late payment penalty abatement! This is on top of the $7,800 in penalties and interest I got removed for his C corporation earlier this year.

Of course, he didn't read the notice and was wondering why the IRS is writing him again! I told him to look for a refund shortly.

CPAdavid (talk|edits) said:

29 July 2009
Congratulations Wayne! Succeeding in this type of situation is a great way to demonstrate the value a good professional tax advisor brings to a client. So often we are bearers of bad news (taxes due).

Pent-Up (talk|edits) said:

29 July 2009
I had a Physician client, who filed and paid late for 2-years. He was in a Divorce action, and horribly depressed. I suggested he have his therapist draft a letter, and he did to the effect he was mentally impaired during this period; the letter was quite extensive replete with exhaustive psychiatric conditions restraining his cognitive abilities to carry on much of anything, during this period of time. The result, the penalties were removed. The lesson, have an independent 3rd party make the evaluation in the greatest possible detail.

Jerrykern (talk|edits) said:

29 July 2009
Waynecpa, how long between the time you submitted the letter, and the time you received the response? I submitted a letter several months ago, didn't receive a response, so I called to check on the status. Was told that they hadn't received it (even though I had proof of delivery). I resent (and have proof of delivery once again), and am now well over a month later with no word.

Waynecpa (talk|edits) said:

29 July 2009
I sent the letter on May 5th and he received a response on July 21st. I think this client must be partly blessed, because they use the language "this action has been taken based solely on the fact that you have a good history of timely filing and timely paying." He filed 2005-2007 returns all late in 2008. Same thing with his C-corp.

Actionbsns (talk|edits) said:

29 July 2009
One of my clients dropped this in my lap yesterday. She tried to do some amending (which it seems was never filed) and discussing with IRS but it has now resulted in a tax levy being proposed. Her daughter is the taxpayer, she worked for someone during 2006 who was doing some illegal stuff, didn't receive a W-2, so she filed without it. Apparently the employer did send in a W-2 with earnings double what the kid actually received. Over time, letters have been received from IRS demanding additional taxes, and the kid was trying to get an amended W-2 from employer, which she now has. It's pretty ugly on the surface and I haven't gotten into it yet in detail. I'm getting a POA from the kid now. I need to put this all in a succinct, to the point manner to at least get the penalties abated. First step will be to halt the levy, which BTW is on the mom's bank account. Any suggestions?

Kevinh5 (talk|edits) said:

29 July 2009
point out to the the bank that it is the mom's account

if it is a joint account, you have to prove to the IRS that it is the mom's money (trace the deposits)

Irsfixer (talk|edits) said:

29 July 2009
Stopping levies is easy - it only requires timely communication. You seem to be out of your depth.

Actionbsns (talk|edits) said:

29 July 2009
The levy is easy. I need to present my case with all its issues in such a way as to get the penalties abated. But thanks for the assessment IRSfixer.

Skassel (talk|edits) said:

30 July 2009
Action, IRSfixer's comment is clearly related to some of your statements.


First, you say that the levy is proposed, but later you say that the levy is on the Mom's bank account. Huh???


A proposed levy would be a Final Notice of Intent to Levy / Notice of Right to Hearing and that's when you should be acted decisively. That was when the timely communication was needed. If you are now past that and there is a levy on a bank account, you have made an error and getting a bank levy released is not that simple.

Actionbsns (talk|edits) said:

30 July 2009
In order to have timely communication, you need to have timely receipt of documents. I just got this yesterday afternoon about 5:30 and the POA from the daughter was fax'd this morning. You're right Steve, the levy is not proposed it's out there on the table and it is the mom's account, not the daughter's, it's not a joint account and they've had this since July 17. The error here is that the client tried to save a few dollars by doing it themselves and not asking for help until this late in the game.

Actionbsns (talk|edits) said:

31 July 2009
Actually the levy was the easiest. Mom's account, daughter not on it at any level, has no accounts at that bank, so bank will return it commenting this is not their customer. Mom paid the tax due on the original return, so IRS just went to that bank hoping for the best.

As for the argument to abate penalties - I think we'll go for the "my dog ate it and I promise to feed my dog better in the future". Seriously, we should be fine with the facts as outlined - W-2 not received, filed a timely return while trying to obtain the W-2, kept trying, finally received the W-2C, and now we are filing the amended returns, please forgive us. I spoke with collections about it this morning and it should come out just fine.

Kevinh5 (talk|edits) said:

31 July 2009
Your comment that mom paid the tax on the original return and so the IRS just went to that bank suggests that the IRS does indeed keep track of the banking info provided on either the check or EFT draft info sent with the original return. I had always heard that they didn't keep that info???

Death&Taxes (talk|edits) said:

31 July 2009
Maybe I am reading too much into this, but the penalties should be those of accuracy and perhaps late payment, not late filing since the original return was timely filed. Your arguments are still valid.

Pent-Up (talk|edits) said:

31 July 2009
Just checked with the RO - I had on hold (Priority Business Line)the Service keeps a Confirmation Number at the point of receipt of payment, but they do not record the "banking info" or "ETF draft info"

Hippie (talk|edits) said:

29 August 2009
I would like to her some advice on how to proceed with this scenario around penalties:

A past client of mine (no longer my client) received a letter from IRS stating that their income was understated on their 2007 return. Due to a transposition error, I entered $107,000 instead of $170,000 on income. Yep in 20 years its possible to screw up. Well before efiling I discussed the the tax return and they sad everything made sense. Obviously neither of noticed the total income being lower than it should. So I crafted a letter in reply to the IRS form stating we were paying the tax due and interest via an installment agreement, but due to a transposition error we wished to have the penalty waived. They responded that they were not waiving the penalty. We requested the issue go to reconsideration dept (via phone) and 45 days later we received a letter via certified mail stating they would not waive it.

Obviously the client will have to pay back the interest and tax due as this was the excess refund they received that year. But what would you do about the penalty? Go another route for abatement....another letter? Is there reasonable cause that the taxpayer should have known their income better than I and should have noted as we walked through 1040 line by line that it was extremely low? I am not saying I will not take responsibility, I am just saying would you offer to pay half the penalty, no penalty, the whole amount, etc? I must have conversations with this former client via the phone as they have moved North last year, so I can't have a heart to heart sit down discussion, although I have apologized for the stress this caused them multiple times. One thing I can say is that i learned my lesson and now triple check numbers!


Approx Details:

Tax due $20k Interest $1,200 Penalty $3,200

Kevinh5 (talk|edits) said:

29 August 2009
I would pay the entire penalty. It is entirely your fault.

Obviously you have attempted to use 'reasonable cause' to get the penalty waived and it didn't happen.

I am going through a similar case myself. Penalty on the table is over $9,500 due to a transcription error. I hate it.

Hippie (talk|edits) said:

29 August 2009
Ouch!!! Kevin that hurts! Can I tell you I feel bad telling my wife I just threw away $3,200 but I do feel a little better seeing your $9,500. Now to make you feel better.....as you pay that $9.500 you can feel good because you made me feel better..if that is of an consolation!

Irsfixer (talk|edits) said:

29 August 2009
"Is there reasonable cause that the taxpayer should have known their income better than I and should have noted as we walked through 1040 line by line that it was extremely low?"

That is the opposite of reasonable cause.

Death&Taxes (talk|edits) said:

29 August 2009
"Is there reasonable cause that the taxpayer should have known their income better than I and should have noted as we walked through 1040 line by line that it was extremely low?"

This might be an argument in a lawsuit between the client and the professional, but as Fixer notes, not between IRS and either the client or the accountant.

Irsfixer (talk|edits) said:

29 August 2009
Hippie, there is no practical way you can write the abatement letter. In order to do one properly, you will have to be thrown under the bus.

Hippie (talk|edits) said:

29 August 2009
Yeah I see what you are saying Fixer but it hurts to cut a check that big to clients who stopped using my service and are a bit snotty.

Snowbird (talk|edits) said:

30 August 2009
I admit to being uninformed on the subject, but I thought that Errors & Omissons insurance covered penalities. Or does it only cover lawsuits? I have not had to conside insurance yet because I have only worked as an employee ... if I do any freelancing or contract work, I would then need it.

Kevinh5 (talk|edits) said:

5 October 2009
Update: IRS granted my request to abate all penalties since the client had 'reasonable cause' by relying on me. And that means I get a refund of the penalty which I had paid. But not the interest. C'est la vie. But my client is happy, and that's what counts. Oh, and I do. Count. And the fact that they counted on me. And I counted on being able to get the penalties abated. That's what counts. I got the penalty abated on all counts.

Death&Taxes (talk|edits) said:

5 October 2009
The 'Kindler, Gentler' IRS?

That is good news!

LJK CPA (talk|edits) said:

6 October 2009
I'm glad to hear that they waived the penalty. That would hurt!

It seems that the IRS response to waiver requests is influenced by the taxpayer's history with the IRS. If a preparer makes a mistake with a taxpayer who has a clean record, it seems like the waivers go through much easier.

Back a few years ago when I switched to 100% e-file, one return was never transmitted. Unfortunately, the taxpayer chronically owed the IRS year after year, but filed on time every year. Of course, that was the year they owed 30K. My waiver request for the late-filing penalty was denied.

Luckily my E&O insurance paid the $4500 penalty. Furthermore, my premiums didn't go up because I have a flat rate policy. The carrier could drop my coverage, but only if they see a pattern of repeated similar mistakes. Now I make sure all returns are transmitted at each deadline.

Umk395 (talk|edits) said:

21 January 2011
Whenever I am obligated to pay a client penalty, I always offset the reimbursement about with the interest that the client would have received on the tax that they retained from the time the return was due until today. So, if the client owes $10,000 in tax with a $1,700 penalty and it's my fault (for the error), I will reimburse him/her $1,700 LESS interest on the $10K for the 13 months from the date the return was due. He had the benefit of investing the $10,000 for 13 months, so it's a fair adjustment. As we know, normally when you screw up that bad, you won't be seeing the client next year anyway. I use a reasonable interest rate (say 20%...just kidding).

Porterj5 (talk|edits) said:

12 July 2012
I am hoping that some one can help me with a reasonable cause letter. We have a client that had not filed 2007-2010 partnership returns until this past year when we started working with him. Partnership has 12 partners for all years so the penalties are quite high.


For 2005 and prior a CPA firm prepared his returns and in 2006 he was no longer able to afford the CPA firm and began trying to file the returns on his own. He completed 2006 and sent it in but after that he was unable to finish any of the returns on his own. He tried to prepare the returns based off of the 2005 return a CPA prepared and a number of convoluted spreadsheets he created. He was unable to complete 2007 on time and was trying to keep his business from closing and then 2008 return due date came around and the cycle continued until he recently came to us.


Any suggestions for how to proceed would be much appreciated.

Trillium (talk|edits) said:

12 July 2012
Well, this thread seems pretty helpful, but do refer to Discussion:Reasonable cause from yesterday.

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