What is IRS Penalty Relief?
IRS penalty relief is a set of guidelines and provisions that allow taxpayers who have made an effort to comply with tax obligations but were unable to do so due to circumstances beyond their control to have their penalties reduced or removed.
The IRS understands that life can be unpredictable, and sometimes events occur that prevent taxpayers from meeting their tax responsibilities on time.
Penalties Eligible for Tax Relief
Penalties eligible for penalty relief include:
- Information Return applies to taxpayers who don’t file or furnish their required information return or payee statement correctly by the due date.
- Failure to File applies when you don’t file your tax return by the due date.
- Failure to Pay applies when you don’t pay the tax you owe by the due date.
- Accuracy-Related applies when you don’t claim all your income or when you claim deductions or credits for which you don’t qualify.
- Failure to Deposit applies when you don’t pay employment taxes accurately or on time.
- Dishonored Check or other form of payment applies when your bank doesn’t honor your check or other form of payment.
- Underpayment of Estimated Tax by Corporations applies when you don’t pay estimated tax accurately or on time for a corporation.
- Underpayment of Estimated Tax by Individuals applies when you don’t pay estimated tax accurately or on time as an individual.
- Other penalties as applicable
Types of Penalty Relief
You may be given one of the following types of penalty relief depending on the penalty:
- First Time Penalty Abate:
- Eligible Penalties: Failure-to-File, Failure-to-Pay, and Failure-to-Deposit penalties.
- Qualification Criteria: To qualify, you must have a good tax compliance history, which typically means you’ve filed all required returns and paid any taxes due for the past three years. Additionally, you should not have any other penalties for the same period, or if you did, they should have been removed for reasons other than First Time Abate Penalty.
- Reasonable Cause
- Eligible Penalties: Failure-to-File, Failure-to-Pay, Accuracy-Related and Information Return penalties.
- Qualification Criteria: To qualify, you must show that you failed to comply with tax laws due to reasonable cause and not willful neglect.
- Here are “Not Valid Reasons“:
- Reliance on a tax professional
- Lack of knowledge
- Mistakes and oversights
- Lack of funds
- Statutory Exception: This relief applies when the law provides an exception to the penalty.
- Relied on incorrect written advice from IRS.
- Mailed a return on time.
- Lived in a federal disaster area.
- Were involved in military operations in a combat zone.
How to Request Penalty Relief
Follow the instructions in the IRS notice you received.
Some penalty relief requests may be accepted over the phone. Call IRS at the toll-free number at the top right corner of your notice or letter.
Have this information when you call:
- The notice or letter IRS sent you
- The penalty you want relieved
- The reasons you think IRS should remove it
During the call, IRS’ll tell you if your penalty relief is approved.
If IRS cannot approve your relief over the phone, you may request relief in writing with Form 843, Claim for Refund and Request for Abatement.
How to Appeal a Penalty Relief Decision
If you received a notice or letter saying IRS denied your request for penalty relief, see Penalty Appeal Eligibility for next steps.
When you come to Appeals, you may represent yourself or have a professional represent you. Your representative must be:
- An attorney
- A certified public accountant, or
- An enrolled agent authorized to practice before the IRS
