What is IRS Penalty Abatement? Can I Get My IRS Tax Penalties Forgiven?
Every year the IRS slaps billions of dollars in Tax Penalties on taxpayers, but if you’ve been hit with a penalty that you don’t deserve, or that you can explain your way out of, then you need to look into the IRS’s Tax Penalty Abatement Program.
The three most common reasons people get slapped with tax penalties are for filing their taxes late, paying their taxes late (or only paying a part of what they owe) or failing to properly deposit payroll taxes (which only applies to businesses and business owners).
Fortunately, all of these penalties can be appealed, and if approved for a discharge, forgiven entirely, so that you don’t end up having to pay the penalty itself, or any additional interest that accumulates as a result of the penalty fine.
This post goes through the IRS tax abatement process, explaining what abatement is, how it works, who qualifies for it, how to apply for an abatement, how to increase the chances that your application will be approved, and how to appeal a rejection of your abatement application.
Quick Links to Topics Covered Within This Guide
To help you find the information you really want, please use the links below to be taken to each specific section within this Guide:
- What is IRS Abatement?
- Who is Eligible for Penalty Abatement?
- What Reasons Qualify You for Abatement?
- Reasonable Cause Penalty Abatement
- First Time Penalty Abatement
- Administrative Waiver Penalty Abatement
- Statutory Exception Penalty Abatement
- How Do I Apply for Penalty Abatement?
- What if My Abatement Application is Rejected?
- Appealing an Abatement Rejection
- Other Things to Consider
- The IRS Penalty Abatement Customer Service Hotline
- Interest Accumulation on Penalties & Unpaid Taxes
- The IRS’s Interest Reduction Policy
- What Should I Do?
- Where Can I Go for Other Questions?
If you have questions anything you couldn’t find in this Guide, please post them in the Comments section below and I’ll try to get you a response within 24 hours.
But Before We Get Started…
Before I explain all the details of the Tax Penalty Abatement process, let me first give you a tip on dealing with your IRS problems: if you owe the IRS lots of money which you can’t afford to pay, then my recommendation is to hire an expert to negotiate a debt settlement on your behalf.
Why would I suggest paying an expert for their help? Because a Professional IRS Negotiator is going to be capable of achieving a much better deal than you could strike on your own, and is highly likely to save you money, even if you pay them hundreds to thousands of dollars for their assistance.
Just think for a second – how many times have you Negotiated a Settlement with the IRS? What do you know about IRS Tax Debt Forgiveness? Do you know how to Prevent an IRS Wage Garnishment? Do you even understand IRS Tax Penalties?
Instead of trying to become an expert in all of these topics, the fastest, easiest and cheapest way to deal with your IRS problems is to pay someone who already knows about all this stuff, and who can take care of everything for you.
But there’s only one company I trust to get the job done right for my readers, and that’s the Tax Debt Relief Helpline. I trust the Helpline because they’re staffed by true IRS debt relief experts, experts who spend all day every day negotiating on behalf of their clients.
To get a quick, cheap and effective IRS settlement, call the Tax Debt Relief Helpline now at 1-888-692-7108.
What is IRS Abatement?
IRS Abatement is just a fancy way of talking about getting your tax penalties forgiven, as “abatement” refers to having the penalty removed from your account.
While the easiest way to qualify for abatement is to prove that the IRS made a mistake in penalizing you, that’s not always possible, because they’re usually right about their calculations.
However, even if the IRS was accurate in assessing a penalty against you, it’s still possible to have it removed if you can explain that you had a really good reason for missing your filing deadline or failing to pay your taxes in full, or on time.
I’ll give you specific advice on abatement appeals in just a moment, but first, let’s look at how the penalty abatement process works, so you can get a feel for what’s required, and whether or not it’s worth attempting.
Who is Eligible for Penalty Abatement?
Anyone who’s been hit with a tax penalty is eligible to apply for abatement, but the important thing to keep in mind is that you definitely do not want to fill out a penalty abatement form unless it seems likely that your request will actually be approved.
Why? Shouldn’t everyone who gets hit with a tax penalty apply for abatement, hoping they’ll get lucky and the IRS will remove the penalty?
Remember that the IRS is run by humans who have limited amounts of time to handle issues like these, and who are driven by normal human emotions, including the tendency to take things personally, hold grudges, etc.
Wasting an IRS agent’s time is not necessarily a good idea, especially if you haven’t been living up to your tax obligations, because pissing them off could lead to repercussions, like encouraging them to do some further digging into your history, income and tax paperwork, or even stimulating them to trigger an Audit, turning your small penalty inconvenience into a complete financial nightmare.
What Reasons Qualify You for Abatement?
There are three main types of IRS abatement available, each of which requires different evidence, information, and situations.
To determine whether or not you’ve got a shot at having your request for abatement approved, review the three options below and figure out which one best applies to your situation.
The four types of IRS penalty abatement available are:
- Abatement for “Reasonable Cause” – Provided to taxpayers who weren’t able to meet their obligations because of some sort of personal issue, like a death in the immediate family, a natural disaster, or a fire that destroys their home and tax-related records
- Abatement for “First Time Penalty” – Provided to taxpayers who has never been in trouble with the IRS before, and who can prove that this is the first time they’ve had any problems at all. Like a one-time “Get Out of Jail Free” card.
- Abatement for “Administrative Waiver” – Provided to taxpayers who received incorrect oral advice from the IRS about how to handle their taxes, which isn’t always all that easy to prove, as there’s typically no recording or the advice provided
- Abatement due to “Statutory Exception” – Provided to taxpayers who can prove that they were given incorrect written information by an IRS employee, which caused them to do something wrong, and thus be hit with a tax penalty
As I mentioned above, you’ll need to pick just one of these types of abatement when attempting to get your tax penalty removed, so the most important part of the process is first deciding which of them best explains your situation and gives you the best chance of having your penalty lifted.
With that said, let’s go into a little bit more detail about each type of abatement before moving on to talking about the application process.
Reasonable Cause Penalty Abatement
One of the easiest forms of abatement to earn is the Reasonable Cause Penalty Abatement Program, which allows you to request that the IRS drop their penalties against you because you were experiencing something that caused you to be distracted, busy, or incapable of dealing with your taxes on time.
This program lets you make the claim that you attempted to meet your Federal tax obligations, but that it was because of situations outside of your control that you weren’t able to do things entirely correctly, or on time, and gives you a second-chance to make things right with the IRS.
The trick to receiving a Reasonable Cause abatement approval is in convincing the IRS employee who reviews your abatement letter that you really were suffering from sort of huge tragedy that prevented you from taking care of your taxes, and that they should give you more time to get it all done correctly.
What you need to keep in mind is that you’re going to need a great excuse; something like a fire, flood or tornado that destroyed your home and tax records, a death in you immediate family that hit you immensely hard, some sort of catastrophic injury that you’ve only just now recovered from, or some other similar situation that will make it clear why you failed to handle your taxes appropriately.
The hardest part of the process is in convincing the reviewer that you truly do deserve to be awarded with penalty abatement, so my suggestion is to spend some considerable time developing your story.
First Time Penalty Abatement
Officially called the “Administrative Waiver and First Time Penalty Abatement Program”, I’ve separated the two named abatement types because they’re truly for different sorts of situations.
Anyway, the First Time penalty abatement is fairly straightforward, as it’s provided to people who have never been in trouble with the IRS before, but who made some basic or simple mistake in their returns.
This form of abatement requires that you haven’t been hit with any IRS penalties for at least 3 years, that you filed all your required returns, or requested an extension before April 15th, and that you’ve already paid, or attempted to pay whatever taxes you thought were due.
The cool thing about the first timer abatement program is that it’s one of the easiest to qualify for, but the downside is that it doesn’t really take care of all the issues you’re going to face for being late or underpaying your taxes.
What do I mean by that? While the other penalty abatement programs (“Reasonable Cause” and “Statutory Exception”) wipe out all of your penalties, this one gets rid of the penalty, but still requires you to pay interest on whatever amount of money you didn’t realize you had to pay.
That means that you’ll only want to use this abatement program after you’ve made good with the IRS by paying your debt in full, so that your penalty (and interest on the penalty itself!) stops accumulating.
Administrative Waiver Penalty Abatement
As I mentioned above, the Administrative Waiver penalty abatement is technically part of the same process as the First Timer abatement I just explained, but an Administrative Waiver abatement is offered to anyone who can prove that htey received bad oral advice from the IRS.
How exactly does that work? This is where things get tricky, because unless you have a recording of the actual audio in which the IRS adviser gave you bad advice, it could end up being difficult to prove that you were told to do the wrong thing.
However, I do know several people who have personally received an Administrative Waiver abatement, so I can vouch for the fact that this program does work, just that it requires making sure you’ve truly got your facts and story straight.
What you’re going to do to qualify for an Administrative Waiver abatement is write up a convincing story that explains exactly how your conversation with the IRS agent went, clearly explaining where they provided you incorrect, and making it crystal clear that it was only due to this bad advice that you ended up making a mistake on your taxes.
Once again, this is not the easiest thing to prove, because it could easily devolve into a he said, she said sort of argument between yourself and an official IRS employee, and if that happens, who do you think the IRS agent ruling on the case is going to believe?
I highly advise that you only go this route if you can write up a perfect transcription of the conversation you had with the IRS official, and if you are absolutely certain that whoever you explain this situation to is going to take your side in the potential argument about who said what.
Statutory Exception Penalty Abatement
The Statutory Exceptional Penalty Abatement Program is my favorite of all the possible options, because it’s the easiest to receive, given that you satisfy the required conditions for an approval.
Why do I say that? Because this program was created to allow you to qualify for penalty removal if you can show evidence that the IRS provided you bad advice in writing, rather than orally, which would be covered by the Administrative Waiver abatement program explains above.
I love this abatement option because it’s so easy to prove; if you were truly provided with incorrect written information from the IRS, then you should certainly be able to produce a copy of that poor advice, right? Especially if you received it electronically, like via email!
The downside to a Statutory Exception abatement is that most people simply aren’t going to qualify for this option, because IRS Agents tend to know what they’re talking about, and rarely give out bad advice.
However, if you happen to be one of the lucky few who was guided down the wrong path by an official representative of the IRS, then the great news is that you’ve got an excellent shot of having your penalty removed, as long as you’ve got a copy of that written advice.
Now that we’ve gone through what sorts of issues would qualify for each type of abatement, let’s discuss the steps of the actual process of applying for each type.
How Do I Apply for Penalty Abatement?
I’m glad you asked! Fortunately, this part of the process is perhaps the most straightforward, and definitely the easiest to explain.
Why? Because the IRS creates a form for pretty much anything you need to do with them, or for any sort of information you’re supposed to provide to them, and they’ve created a specific form for requesting penalty abatement!
All you need to do to apply for abatement is to fill out IRS Form 843, providing details about the type of abatement you’re seeking, and your reasons why you deserve to receive an abatement approval, and submit it to the IRS.
To get started, simply download and fill out IRS Form 843, which you should be able to access here.
And if you need help filling out Form 843, check out the IRS’s Instructions for Form 843 here.
What if My IRS Penalty Abatement Letter is Rejected?
If your request for abatement is rejected, don’t give up yet, because there’s still a chance that you could get that penalty removed by applying for an abatement appeal.
Perhaps the best part of the abatement process is that even if the IRS rejects your initial request for abatement, you’ll have up to 60 days of receiving their rejection notice to file an appeal.
The good news is that the appeals process is fairly straightforward, and the IRS even offers an Online Penalty Appeals Tool created specifically for this purpose, so be sure to keep at it if you think you truly do deserve to have that penalty removed.
Keep in mind that this tool is only to be used after your request for abatement is rejected, not in advance (that’s what Form 843 is for!), and that you will have your online request for an appeal rejected instantly if you haven’t already been issued an official Notice of Disallowance letter.
Are You Sure You Want to Appeal?
Finally, before you file that appeal, remember the advice I offered at the beginning of this post – if you truly don’t deserve abatement, and have actually done something wrong with your taxes and are trying to cover that up, or get away with making mistakes or outright frauds, then you certainly don’t want to file an appeal for abatement.
Why? Because the initial abatement process is often handled by an automated tool, essentially an algorithm or machine that reviews the details and spits out an answer or approval or rejection, whereas the appeals request is reviewed by a human being 100% of the time.
If you have anything you don’t want the IRS digging into deeply, or questioning, or asking for more information about, then asking them to assign an agent to review your abatement rejection is definitely not going to be in your best interest.
Finally, keep in mind that the appeal request could take up to nine months to process, so it could be a while before you hear back from the IRS, and you’re going to need to be pretty patient about awaiting their response.
Other Abatement Considerations
One thing I alluded to in my introduction to this guide, but haven’t covered yet, is the process for penalty abatement on withholding penalties.
If you fail to withhold enough money from your paycheck, or if your’e a small business owner and you fail to make the required number and amount of estimated quarterly tax payments, then the IRS can issue a withholding penalty against you.
Unfortunately, unlike the failure to file penalty and failure to pay on time penalty, withholding penalties are almost never offered abatement, and by “almost never”, I mean that the rate of success is less than 1% each year.
If you’ve been hit with a withholding or payroll tax penalty, then you’re almost certainly out of luck, and going to have to face the music.
In fact, I wouldn’t even recommend filing for abatement because it is more likely to make things worse than better, uncovering you to additional questions, investigations, or potentially even an IRS Audit.
The IRS’s Penalty Abatement Customer Service Hotline
One quick note – it’s possible to file an appeal for abatement rejection without using the IRS’s online tool, and that’s by calling the IRS directly to request a review from an actual person.
This process is faster, easier for those who aren’t great at computers, and perhaps a more personal way to approach the process, as you can at least speak with a human being who understands what’s required, and who may be able to give you some suggestions about whether what you’re doing is a good idea or not.
I would keep in mind that you are speaking to an IRS agency, and that you don’t want to pique their curiosity or get their wheels spinning, wondering about whether or not you’ve hidden anything from them, so I’d suggest you prepare your comments and questions before picking up the phone and dialing this number.
Once you’re ready to have that discussion, however, don’t be shy, because the IRS Toll-Free Customer Service Hotline was created specifically to help with situations like these, and you can reach it by dialing 1-800-829-1040.
Interest Accumulation on Penalties & Unpaid Taxes
To make it crystal clear, even if your penalty abatement request is approved, the IRS may not drop all the interest that’s accumulated on the taxes you still owe them.
While you will receive a discount, or complete forgiveness for whatever penalty they had previously issued (assuming they agree it doesn’t deserve to be applied), the abatement approval isn’t going to get you out of having to pay back whatever you truly do owe, or the interest that’s built up from the time that you were originally supposed to pay it.
For some people, this could be a pretty significant amount of money, so each specific individual really does need to evaluate their situation personally, determine whether or not the penalty abatement request is worth the risk of a potential audit, then decide what they need to do.
As I’ve said before, if you’ve done anything wrong, or even come close to anything illegal, then filing a penalty abatement request is probably not in your best interest.
How Does the IRS Interest Accumulation Process Work?
To add clarity to the point above, here’s how the IRS determines interest on unpaid taxes:
- Interest is charged on unpaid taxes and penalties until you pay off your debt in full
- Interest accumulates daily, at a rate set quarterly
- Interest for Failure to File Penalties or Accuracy of Information Penalties begins accumulating the day your return was due (or the day your request for an extension was due)
- Interest for Failure to Pay Penalties, Estimated Tax Penalties and Dishonored Check Penalties begins the date you were notified of the penalty in writing (literally the date listed on your IRS notice)
As a result of these rules, the interest you owe could end up being a significant portion of the total amount of money that the IRS wants from you.
In cases where penalties and unpaid taxes aren’t handled quickly, interest can quickly become the biggest portion of the amount due.
For additional details, check out the IRS’s Guide to Interest for Individuals.
The IRS’s Interest Reduction Policy
While the IRS makes it relatively easy to wipe out any penalties that you should be facing, their policy for handling interest charges is different.
Per the rules of the IRS Interest Reduction Relief Program, when you have a tax penalty abated, the IRS will automatically calculate the amount of interest forgiveness you’re set to receive.
However, you’re only able to get any of the interest reduced if your penalty and interest was the result of “unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act”.
This means that if you receive penalty abatement for a First-Time Relief Penalty, or Reasonable Cause, while you’ll get the penalty forgiven, you’ll still have to pay interest on whatever amount of taxes you were supposed to pay, but haven’t yet made good on.
If you think the IRS has made a mistake in calculating your interest, or determining how much interest relief you’re supposed to receive, then your only path for recourse is to file Form 843, the same form we’ve been discussing and which is used for abatement in the first place.
What Should I Do?
If you’ve been slapped with a failure to file penalty or a failure to pay on time penalty, and you think you have a chance at qualifying for one of the abatement avenues I outlined above, then my suggestion is to file IRS Form 843 and hope for the best.
I would not recommend doing this if you have any shady or grey accounting practices involved in creating your returns and determining your tax liabilities, and I would certainly suggest avoiding it if you’re actively doing anything illegal regarding your tax liabilities.
To streamline your process to achieving tax debt relief, especially if you owe the IRS over $10,000, my advice is to bring in a hired gun to fight them on your behalf.
Why do I suggest paying someone else to do what you could handle yourself, entirely for free? Because a professional Tax Settlement Agency is likely to reach a far better outcome with the IRS than you could yourself.
Remember, the IRS spends all their time calculating taxes, pursuing tax cheats, and prosecuting those who they think are screwing them over. These guys are dedicated, career agents, who dedicate their lives to the service.
Why Should I Pay For an Expert’s Assistance?
Compared to an IRS agent, how much do you think you know about tax forgiveness, tax debt negotiations, or loopholes and problems with the IRS Tax Code?
Paying an expert to take on the work for you, and fight the IRS on your behalf, is a much safer way to wage that war, increasing the odds that you’ll end up with a favorable result once all is said and done.
But I wouldn’t hire just anyone to handle this extremely complicated, personal and dangerous business for you; the company I trust to get this done right for my readers is the Tax Debt Relief Helpline.
The Tax Debt Relief Helpline employs actual tax experts and IRS negotiators who can battle the IRS on your behalf, and who will do everything possible to wipe out your debt as quickly, cheaply and affordably as possible.
To get an expert’s help with your IRS problems, call the Tax Debt Relief Helpline now at 1-888-692-7108.
Where Can I Go For Other Questions?
Other pages of my site provide suggestions, tips and guidance on handling other IRS-related issues, from negotiating a tax debt settlement, to applying for the Fresh Start Initiative, so be sure to check out some of my other Guides if you have more questions about how to deal with your IRS debt.
Some important pages worth your attention include my Guide to IRS Tax Penalties, my Guide to Back Taxes, my Guide to IRS Debt Forgiveness, my Guide to IRS Settlements, my Guide to IRS Resolution Agencies, my Guide to the IRS Collections Process, and my Guide to the IRS Fresh Start Program.
You’ll also want to review the IRS’s Taxpayer Bill of Rights, which details your rights as a debtor, and outlines what the IRS and their Private Debt Collection Agencies are legally allowed to do in an attempt to recover the money they claim you owe them.
And finally, if you have other questions about the IRS, back taxes, or any other related concerns, please post them in the Comments below and I’ll do my best to get you a response within 24 hours.
Disclaimer: Information obtained from Forget Tax Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of the Treasury, the IRS or any other Government Organization.