California Penalty Abatement: How to File a Request

Penalty abatement is the process of formally asking a state tax agency to remove an assessed penalty. In California, this involves one of three agencies, depending on the type of tax: The Franchise Tax Board (FTB) for personal and corporate income taxes, the California Department of Tax and Fee Administration (CDTFA) for sales and business taxes, and the Employment Development Department (EDD) for payroll taxes. Each agency has its own procedures for considering an abatement request. The success of a request depends on providing a valid reason and sufficient documentation to support the case.

Grounds for Penalty Abatement

Reasonable Cause

The most common basis for requesting penalty abatement is demonstrating “reasonable cause.” This legal standard requires a taxpayer to show that they exercised ordinary business care and prudence but were still unable to file a return or pay taxes on time. It acknowledges that circumstances beyond a taxpayer’s control can prevent compliance, not as an excuse for carelessness. The burden of proof lies with the taxpayer to present a factual case.

Several situations are commonly accepted as constituting reasonable cause. The death or serious illness of the taxpayer or an immediate family member is a frequent justification. Other valid reasons include situations where essential records were destroyed by a fire or other natural disaster, or receiving erroneous advice from a tax agency employee or a competent tax professional.

Conversely, certain arguments are unlikely to be accepted. A simple lack of funds to pay the tax liability is not considered reasonable cause, as the obligation to pay is separate from the ability to do so. Similarly, claiming ignorance of tax law or forgetting a deadline does not meet the standard of ordinary business care and prudence.

Statutory Exceptions

Beyond reasonable cause, California law provides specific statutory exceptions that can lead to penalty removal. A significant exception for individual taxpayers is the FTB’s one-time abatement program. This provision allows for the waiver of failure-to-file and failure-to-pay penalties for a single tax year and is distinct from reasonable cause.

To qualify for the FTB’s one-time abatement, a taxpayer must meet several criteria.

• Be fully compliant with all other tax return filing requirements.
• Have paid all outstanding tax liabilities or be current on an approved installment agreement.
• Be an individual taxpayer, as this relief does not apply to business entities, trusts, or estates.
• The request must be for a tax year beginning on or after January 1, 2022.
• Have not previously been granted this specific abatement.

Other statutory exceptions may also apply. For instance, the CDTFA may grant relief for penalties incurred by a taxpayer located in a declared disaster area. The FTB may also abate interest if an error or delay was caused by the FTB itself, though this is a separate process from penalty abatement.

Information and Documentation to Prepare

Required Supporting Documents

To build a case for reasonable cause, you must provide objective evidence to support your claims. If your request is based on a serious illness, prepare copies of dated medical records, a letter from a physician detailing the period of incapacitation, or hospital summaries. These documents help establish a clear timeline of events.

If your claim stems from a natural disaster that destroyed your records, your evidence should be just as specific. Collect copies of insurance claims, police or fire department reports, and dated photos of the event. For claims based on receiving incorrect advice, you would need to provide a copy of the written advice or detailed notes from a conversation with an agency employee, including the date and employee’s name.

Obtaining and Completing the Request Form

For penalties assessed by the Franchise Tax Board, the form you use depends on the reason for your request. If you are claiming reasonable cause, you will need Form FTB 2917. This form requires a detailed narrative of the events that prevented you from complying, referencing your supporting documents.

For the one-time penalty abatement program, you must use Form FTB 2918. For penalties from the CDTFA or EDD, the request is made through a formal letter, although the CDTFA does offer Form CDTFA-735 as an option. This letter must contain your identifying information, the tax period, the penalty amount, and a detailed explanation for the request accompanied by supporting documentation.

The Abatement Request Process

Submitting Your Request

For the FTB, you can mail the completed form and attachments to the address specified in the form’s instructions. The FTB also offers an online portal, MyFTB, which allows for the secure upload of your request. For a one-time abatement request, you may also be able to make the request verbally by calling the FTB.

For the CDTFA, requests can be submitted online through their portal, or you can mail a formal letter or Form CDTFA-735. The EDD requires a written penalty waiver request to be mailed. It is advisable to send any mailed submissions via certified mail with a return receipt to have proof of the delivery date.

What to Expect After Submission

After you submit your request, the agency begins its review process, which can take several months. During this time, interest may continue to accrue on any unpaid tax balance. The agency may contact you if they require additional information or clarification regarding your claim, and you should respond promptly to avoid delays or a denial.

Agency Decisions and Next Steps

If your request is approved, you will receive a notice confirming the abatement of the penalty. Any payments you made toward that penalty will be refunded or credited to your account.

If your request is denied, the notice will explain the reason for the decision. A denial is not the final word, as the notice will also provide information on your appeal rights and the deadline for filing. For FTB and CDTFA denials, the next step is to file an appeal with the Office of Tax Appeals (OTA), an independent body that hears taxpayer disputes.