IRM 20.1.1.3.6.1: Penalty Relief Criteria and How to Request It
Explore the criteria and process for requesting penalty relief under IRM 20.1.1.3.6.1, including necessary documentation and next steps if denied.
Navigating the complexities of tax penalties can be overwhelming for individuals and businesses. The Internal Revenue Manual (IRM) 20.1.1.3.6.1 provides guidance on obtaining penalty relief from the IRS, offering vital information for taxpayers facing financial burdens due to unforeseen circumstances or honest mistakes.
Scope of IRM 20.1.1.3.6.1
IRM 20.1.1.3.6.1 defines the parameters for seeking penalty relief from the IRS, addressing penalties for late filings, underpayments, or other compliance issues. It establishes circumstances under which the IRS may waive or reduce penalties, focusing on reasonable cause and administrative waivers like the First-Time Abate (FTA) policy. Reasonable cause allows taxpayers to demonstrate that non-compliance resulted from uncontrollable circumstances, such as natural disasters or serious illness. The FTA policy offers relief to taxpayers with a clean compliance history who made a one-time error.
This guidance applies to both individuals and businesses, stressing the importance of accurate records and timely action to support claims for relief. Delays in addressing penalties can lead to additional financial burdens, including compounding interest.
Criteria for Penalty Relief
The IRS evaluates penalty relief requests based on reasonable cause, requiring taxpayers to prove that non-compliance resulted from factors beyond their control. Examples include a natural disaster or severe illness affecting the ability to meet tax obligations. Taxpayers must also demonstrate ordinary business care and prudence, showing efforts to comply with tax laws and promptly address issues once identified.
Statutory exceptions, such as incorrect written advice from the IRS or uncommunicated changes in tax law, may also exempt taxpayers from penalties under specific conditions.
Required Documentation
Obtaining penalty relief requires thorough documentation. Taxpayers must provide evidence supporting their case, including financial records, correspondence, or materials explaining the circumstances leading to the penalty. For instance, if a natural disaster delayed filing, insurance claims or government notices may illustrate the disruption.
A detailed timeline of events leading to the issue should accompany communications with the IRS, showing proactive efforts to resolve the matter. Affidavits or statements from third parties, such as medical professionals or financial advisors, can add credibility to claims by offering objective perspectives on the challenges faced.
How to Initiate a Relief Request
Requesting penalty relief begins with drafting a well-organized written request. The letter, addressed to the appropriate IRS office, should clearly state the basis for the appeal and include identification details like Social Security or Employer Identification Numbers. Taxpayers should present their narrative, connecting evidence to their claim and referencing relevant sections of the Internal Revenue Code or IRS guidelines. For example, citing IRC Section 6404(f) can support claims of reliance on incorrect IRS advice.
Including calculations or financial metrics illustrating the taxpayer’s position can further strengthen the request.
Actions if a Request is Denied
If the IRS denies a penalty relief request, the denial letter will outline the reasons for the decision. Reviewing these reasons carefully helps determine whether to appeal or address deficiencies in the original request.
Taxpayers can file an appeal with the IRS Office of Appeals by submitting Form 843, “Claim for Refund and Request for Abatement,” along with a detailed explanation of why the denial should be reconsidered. Additional documentation or arguments addressing specific issues raised in the denial letter should be included.
In cases of significant financial hardship or systemic issues, taxpayers may seek assistance from the Taxpayer Advocate Service (TAS), an independent organization within the IRS. The TAS can guide taxpayers through the appeals process or intervene in cases involving delays or procedural errors. If all administrative remedies are exhausted, litigation in the U.S. Tax Court or other federal courts may be an option, though taxpayers should carefully weigh the costs and likelihood of success before pursuing legal action.